The Big 4 effect for new audit services: The case of the Danish COVID‐19 fixed‐cost business‐support scheme

Abstract

This study investigates the Big 4 effect for a new‐to‐the‐world audit service. Based on unique data from the Danish COVID‐19 fixed cost support scheme we analyse differences in audit fees and two measures of audit quality across Big 4 and non‐Big 4 engagements. Our findings suggest that firms engaging with Big 4 auditors experience more successful outcomes in the application process and are willing to pay a Big 4 premium for comparable assurance services. Clients of Big 4 auditors are, on average, more likely to receive full compensation, and experience fewer rejections during the application process than clients of non‐Big 4 auditors. This research has implications for policymakers and companies.