Is Joint-Audit Regulation Likely to Mitigate the Audit Market Concentration in the Long Run? The French Experience

Abstract

Policy makers have considered joint-audits as a solution to mitigate the audit market concentration and the “systemic” risk associated with Big 4 auditors. Using the French system as a relevant joint-audit laboratory, we implement a Markovian analysis to infer the long-term market structure by considering that audit clients chose between different types of joint-audit combinations. Main findings support the view that the French joint-audit system is effective in maintaining market openness, and in mitigating the Big 4 domination in the long run. The “mixed” joint-audit arrangement remains the choice of a majority of audit clients. Also, joint-audits involving two non-Big 4 auditors would outperform those made of two Big 4 auditors, and Mid-Tier auditors seem to play a significant role on that point. Overall, this study supports the European Commission’s (2011) position on the potential benefits of joint-audits in mitigating the market concentration; it also suggests that it might not be necessary to impose “mixed” joint-audits to achieve that objective.

Keywords: joint-auditing, auditor concentration, Markov chain, France

JEL Classification: M42, M48, L51