Changes in Audit Market Competition and the Big N Premium
University of New South Wales
UNSW Australia Business School, School of Accounting
Billy S. Soo
Northeastern University - Accounting Group
April, 19 2012
Auditing: A Journal of Practice & Theory, Forthcoming
We respond to calls for research into the effect of the decline in the number of Big N firms on market power and consequential impact on competition (U.S. Department of Treasury 2008; European Commission 2010; U.K. House of Lords 2011) by analyzing the change in Big N audit fee premium over the Big 6, Big 5 and Big 4 periods and across different client segments. Using a large sample of Australian publicly listed companies over the years 1996-2007, we find that while premiums paid to Big N auditors have increased significantly for the Big 4 and Big 5 periods compared to the Big 6 period, the growth has not been shared equally across all client segments. In particular, while the largest global clients pay some of the highest premiums, the increase in premiums for this group in the Big 4 period has been lower than those experienced by other clients. We also observe that premiums paid to industry specialists have declined relative to the Big 6 period but fee discounts offered to clients switching to a Big N auditor from a non-Big N auditor have increased. In all, we find that the premiums paid by Big N clients increased in line with consolidation in the number of Big N audit firms but the impact varied across client segments.
Number of Pages in PDF File: 48
Keywords: audit fees, audit market, competition, regulation, longitudinal analysis
Date posted: April 20, 2012
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