The Influence of Cross-Border Cooperation between Securities Regulators on Audit Fees

ABSTRACT In this study, we examine the influence of the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU), a special cooperative arrangement designed to enhance cross-border regulatory enforcement, on the audit fees imposed on U.S.-listed foreign firms. Using the different times of countries’ entry into the MMoU as a staggered shock, we find that after a foreign country enters the MMoU, the audit fees for its U.S.-listed firms increase to a greater extent than those for either foreign firms or U.S. domestic firms. This effect is stronger for U.S.-listed foreign firms from countries with weaker institutions and for auditors with a higher level of firm-specific litigation concern, as measured by firms’ auditing by Big 4 auditors.