Description	Variable	Definition
Dependent variable	AF	natural log of total audit fee, which consists of fee paid to external auditors for financial statement audit of the parent company and consolidated subsidiaries.
Variables of Interest
Audit Fee Premium Model: Equations ((1) and (2))	FeePrem	dummy variable equals to 1 if the client is audited by one of the Japanese auditors affiliated with the global Big 4 audit firms networks (Deloitte Touche Tohmatsu, E&Y Shin Nihon, KPMG AZSA, PwC Aarata, PwC Chuo Aoyama, and PwC Misuzu), and 0 otherwise.
	ClientSeg	dummy variable equals to 1 if the median total assets of the client belong to the upper half (>50^th percentile) of the industry-year sample, and 0 otherwise.
	Big3Per	dummy variable equals to 1 if the audit took place during the Big 3 period (2006-2011), and 0 otherwise.
Control Variables
Description	Variable	Definition
Client’s attributes―size	TA	natural log of clients’ total assets.
Client’s attributes―size	IndPTA	ratio of the client’s total assets to total assets of companies within the industry-year.
Client’s attributes―complexity	SUBS	natural log of number of consolidated subsidiaries (if a company has zero subsidiaries, it is re-coded as 1 before taking the natural log).
Client’s attributes―complexity	FORN	ratio of the client’s overseas sales to net sales.
Client’s attributes―risk	ROI	ratio of the client’s net income to total assets.
Client’s attributes―risk	LIQ	ratio of the client’s current assets (less inventories) to current liabilities.
Client’s attributes―risk	LEV	ratio of the client’s total liabilities to total equity.
Client’s attributes―risk	LOSS	dummy variable equal to 1 if the client incurred a net loss in the previous fiscal year, and 0 otherwise.
Client’s attributes―accounting standards	GAAP	dummy variable equal to 1 if the client is a SEC registrant or an IFRS adopter, and 0 otherwise.
Auditor’s attributes	TEAM	natural log of number of CPAs, junior accountants and other staffs employed in the audit engagement (excluding engagement partners).
Auditor’s attributes	TENR	number of years an auditee has hired its current auditor.
Auditor’s attributes	NAF	natural log of non-audit fee paid by the client to its current year auditor.
Auditor’s attributes	AISpec	auditor’s industry specialization variable which measures auditor market share within the industry-year (based on client number).
Auditor’s attributes	DOMN	industry dispersion measure which measures market dominance of an auditor as it obtained more clients in the industry.
Audit engagement’s attributes	AOP	dummy variable equal to 1 if the client received a modified audit opinion or worse, and 0 if the client received an unqualified audit opinion with additional notes or better.
Audit engagement’s attributes	ACC	audit quality measure, measured by the absolute value of total discretionary accruals estimated using the modified Jones (1991) model.
Audit engagement’s attributes	POW	client’s bargaining power with its auditor in the industry, calculated by the relative size of the client’s audit fee divided by the sum of the auditor’s total audit fee received from all its clients in the industry.
Audit engagement’s attributes	DIST	competitor distance, measured by the smallest absolute audit market share (based on client number) difference between audit leader and its closest competitor within an industry.
Audit engagement’s attributes	GFC	dummy variable equal to 1 if the audit took place in fiscal year 2008 to control for the effect of global financial crisis, and 0 otherwise.
Audit engagement’s attributes	REG	dummy variable equal to 1 if the audit took place in fiscal year 2007 to control for the amendment of the Financial Instruments and Exchange Act (FIEA) that is effective in fiscal year 2008 (refer to Table 2.1 for more details), and 0 otherwise.