Is the Audit Services Market Competitive Following Arthur Andersen's Collapse?

26 Pages Posted: 13 May 2008

See all articles by Jane Hamilton

Jane Hamilton

La Trobe University

Yang Li

UNSW Australia Business School, School of Accounting

Donald J. Stokes

Monash University

Date Written: 2007-07-08

Abstract

This study investigates whether audit markets remain competitive in the wake of Arthur Andersen's demise and merger with Ernst & Young to create the Big Four. We conduct the study estimating audit fee models using Australian audit market data from both 2000 and 2003 to determine whether there is any evidence of cartel pricing either before, or subsequent to, the merger. In both years, we find evidence of a Big N price premium when estimating an audit fee model across all clients, and when we estimate the model separately across large and small client market segments. This evidence is consistent with product differentiation by Big N auditors and competitive markets.

Suggested Citation

Hamilton, Jane Maree and Li, Yang and Stokes, Donald, Is the Audit Services Market Competitive Following Arthur Andersen's Collapse? (2007-07-08). Accounting & Finance, Vol. 48, Issue 2, pp. 233-258, June 2008. Available at SSRN: https://ssrn.com/abstract=1131467 or http://dx.doi.org/10.1111/j.1467-629X.2007.00242.x

Jane Maree Hamilton (Contact Author)

La Trobe University ( email )

PO Box 199
Bendigo, Victoria 3550
Australia
61 3 54447292 (Phone)
61 3 54 447998 (Fax)

Yang Li

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
+61 2 9385 6352 (Phone)
+61 2 9385 5925 (Fax)

Donald Stokes

Monash University ( email )

Department of Accounting and Finance
P O Box 197
Caulfield East, Victoria 3145
Australia

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