The Impact of Big N Public Accounting Firm Consolidation on Auditor Industry Concentration
36 Pages Posted: 26 Jul 2008
Date Written: July 18, 2008
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: Suggested Citation