Impact of the SEC's Public Fee Disclosure Requirement on Subsequent Period Fees and Implications for Market Efficiency

• DOI: 10.2308/aud.2005.24.s-1.145
• Publication Date: 2008-12-08T16:45:56Z
• Authors: Jere R. Francis; Dechun Wang
• Keywords: Public disclosure; Surprise

This study investigates the impact of U.S. Securities and Exchange Commission's (SEC) mandated public disclosure audit fees on subsequent period pricing. Our theoretical model predicts that initial will lead to greater precision reduced dispersion (less variance) in fees. Using new fee disclosures first two years (2000 2001), we find significantly smaller variances as predicted for 2001 relative 2000. In addition, document those clients were “overcharged” (“undercharged”) 2000 have lower (higher) 2001. However, there is downward adjustment than upward suggests bargaining power over auditors. We also appear completed process by second post-disclosure year (2002) with adjusting average around 0.31 percent each one surprise sum, evidence indicates has improved pricing this a potentially more fundamental lasting consequence disclosure, transcends SEC's original rationale, which was narrowly premised conjectured adverse effect nonaudit services auditor independence.