The Impact of Big N Public Accounting Firm Consolidation on Auditor Industry Concentration

36 Pages Posted: 26 Jul 2008

See all articles by Kimberly Dunn

Kimberly Dunn

Florida Atlantic University - School of Accounting

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting

Brian W. Mayhew

University of Wisconsin - Madison - Department of Accounting and Information Systems

Date Written: July 18, 2008

Abstract

We investigate the impact of the Big8 to the Big4 consolidation of public accounting firms and the Sarbanes Oxley Act of 2002 (SOX) on auditor industry concentration levels. We find that auditor industry concentration levels increase as the number of Big N auditors decrease. However, the gains are not shared equally among the remaining firms. Specifically, firms with large pre-consolidation industry market shares gain industry market share, while firms with low pre-consolidation shares do not gain industry market shares. Consolidation produces an increasing market share differential between the industry leaders and the lower ranked auditors in the industry. We then explore whether the increase in industry concentration impacts the ability of the largest clients in each industry to employ different auditors. Despite increased industry concentration among industry leading auditors, the commonality of auditors serving the largest two companies does not change significantly as a result of the three major consolidations. Only the Big6 mergers increases the commonality of auditors among the largest four companies. Our evidence suggests that consolidation increases auditor industry concentration levels, but the largest clients, in general, maintain diversity in auditors.

Keywords: Auditing, Industry Concentration, Competition

JEL Classification: L89, M41, M49, G38

Suggested Citation

Dunn, Kimberly A. and Kohlbeck, Mark J. and Mayhew, Brian W., The Impact of Big N Public Accounting Firm Consolidation on Auditor Industry Concentration (July 18, 2008). Available at SSRN: https://ssrn.com/abstract=1178182 or http://dx.doi.org/10.2139/ssrn.1178182

Kimberly A. Dunn

Florida Atlantic University - School of Accounting ( email )

University Tower
220 SE 2 Avenue
Boca Raton, FL 33431
United States
561-297-3643 (Phone)

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting ( email )

777 Glades Avenue
KH 119
Boca Raton, FL 33431-0991
United States
561-297-1363 (Phone)

Brian W. Mayhew (Contact Author)

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-2714 (Phone)
608-263-0477 (Fax)

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