Accounting for Negative Attention: Status and Costs in the Market for Audit Services
A large body of research in economic sociology and organization theory presumes that high-status firms enjoy a significant cost advantage relative to their peers. The negative relationship between status and certain costs is attributed in part to exchange partners’ willingness to lower their fees for high-status clients so they may reap the visibility-related benefits of associating with them. However, affiliating with a high-status client can bring a seller not only positive but also negative attention. This is due to the additional scrutiny that high-status firms draw from the media and other actors. We propose that under certain conditions sellers will consider the possibility that negative attention directed at their high-status clients may spill over to them, and that they will accordingly charge their high-status clients more. To test this argument, we analyze fees paid by clients of varying status levels in the $60 billion U.S. market for audit services. Consistent with our arguments, we find that high-status clients tend to pay more than their peers. We show that this result is driven in part by auditors’ concern with negative attention, which is particularly strong when a client is associated with previous misconduct or belongs to a stigmatized industry.
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