An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Jong - Hag Choi
Seoul National University

Jeong - Bon Kim
Hong Kong Polytechnic University

Xiaohong Liu
Hong Kong University of Science and Technology

Dan Simunic
University of British Columbia

Abstract: In this paper, we first develop a model in which national legal environments play a crucial role in determining audit fee premiums for cross-listed firms. Our model predicts that: (1) auditors charge higher fees for the firms that are cross-listed in stronger legal regimes than for non-cross-listed firms; and (2) the cross-listing audit fee premium increases as the difference in the strictness of legal regimes between the home country and the foreign country becomes larger. We then test the model’s predictions using data from 14 countries with different legal regimes where audit fee data are available. The results of our analyses strongly support the model’s predictions. However, we find no significant cross-listing premiums for the firms that are cross-listed in countries whose legal regimes are not stronger than those of their home countries. Our regression results offer explanations of why the cross-listing premiums occur and what determines the magnitude of the premiums.

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