Litigation risk and audit fees: evidence from UK firms cross-listed on US markets

Two ingredients necessary to examine the relation between litigation risk and audit pricing are (a) a litigious legal environment, and (b) publicly disclosed auditor remuneration. We combine both ingredients by focusing on UK firms offering to sell their securities publicly in the United States. We find that UK auditors charge higher fees for their services when their clients access US, but not non-US, capital markets. Further, we show that the higher fees cannot be fully explained by the SEC's extensive disclosure requirements, Rather, these findings are consistent with audit fees reflecting risk differences across liability regimes. (C) 2002 Elsevier Science B.V. All rights reserved.