Client's business risk, public-interest entities, and audit fees: The case of German credit institutions

Abstract

This study examines a sample of 573 German credit institution-year observations covering 2009–2011, a period when not all credit institutions were designated as public-interest entities (PIEs) in Germany. The results show that a credit institution's business risk is associated with audit fees. In addition, the statistically significant findings reveal that PIE credit institutions pay approximately 27.29% higher audit fees, on average. There is also some evidence of an association between the interaction of a credit institution's business risk and PIE status and audit fees even if, on average, the business risk of credit institutions seems not to vary systematically between PIEs and non-PIEs. Ultimately, since a dummy variable for PIE versus non-PIE might not only, or even primarily, capture effects attributable to PIE status, the results should be interpreted with caution.