Pay Gaps among Auditors, Diversification, and the Performance of Partnership Audit Firms in Taiwan?

A few studies look at partnership audit firms, and examine how they use the pay gaps to enhance their performance. In this paper, we argue that promotion-to-partner tournament with a large pay gap is pervasive in public accounting industry, provoking feelings of inequality and being undervalued for auditors. The audit manger, can simultaneously be an agent and a potential owner, affects the relationship between auditor pay gaps and partnership CPA firm performance. That relationship is contingent on the organizational complexity (i.e., CPA firms diversify their services into auditing, tax advice, and other advice). This study uses pooled cross-sectional research designs and partnership CPA firm data for the year 2004-2007. We find that large differences in pay between the lower-level employee and partner compensation are detrimental to partnership CPA firm performance. We find that increasing in pay gaps will deliver partnership audit firm’s performance when coupled with more audit managers to coordinate. However, diversification influences the strength of that relationship.