This paper aims to investigate whether audit partners can signal their audit quality to the market by having, gaining or losing large prestigious audit clients.
A hedonic audit fee model is estimated on a sample of 19.702 firm/years of Australian listed companies for the period 2013–23 with variables added to code for partners who have, gain or lose large clients at various fee thresholds.
Non Big-4 partners who have, gain or lose large clients can earn significant fee premiums from their smaller clients However, there are no significant fee premiums for Big-4 partners. The results for non Big-4 are partially explained by a “trading up” effect.
The results show that audit firms, particularly non Big-4 firms, can market their partners based on the prestigious clients they audit and can earn fee premiums for doing so. They also show that the market values partners who prune their client portfolios.
This paper shows smaller clients can make judgments about audit partner quality based on the ability of partners to attract and retain large clients and willingness to prune their client portfolios and that this will influence their willingness to pay fee premiums to be audited by such partners.
