Auditor Mergers, Audit Quality and Audit Fees: Evidence from the Pricewaterhousecoopers Merger in the UK

Posted: 30 Sep 2012 Last revised: 1 Dec 2012

See all articles by Yuping Jia

Yuping Jia

Frankfurt School of Finance & Management - Accounting Department

Rong Ding

NEOMA Business School

Date Written: 2012

Abstract

Focusing on the merger of Price Waterhouse and Coopers & Lybrand in 1998, we document increased audit quality (measured by earnings quality of the clients) for the merged firm and other big-X auditors 1 during the post-merger period because: 1) controlling for economic conditions, clients of big-X auditors have lower levels of absolute discretionary accruals and 2) the value relevance of earnings has significantly increased. Furthermore, we find evidence that in the post-merger period, there is a significant increase in audit fees for PricewaterhouseCoopers and other big-X client firms, which suggests that the effect of collectively enhanced market power of big-X auditors (which tends to increase audit fees) dominates the effect of cost savings from the merger (which tends to lower audit fees). The results have implications for regulators and policy makers.

Keywords: Auditor merger, audit fee, earnings quality

JEL Classification: M42

Suggested Citation

Jia, Yuping and Ding, Rong, Auditor Mergers, Audit Quality and Audit Fees: Evidence from the Pricewaterhousecoopers Merger in the UK (2012). Journal of Accounting and Public Policy, Vol. 31, No. 1, 2012, Available at SSRN: https://ssrn.com/abstract=2154160

Yuping Jia (Contact Author)

Frankfurt School of Finance & Management - Accounting Department ( email )

Sonnemannstra├če 9-11
Frankfurt
Germany
0049 69 154008 839 (Phone)

Rong Ding

NEOMA Business School ( email )

1 RUE DU MARECHAL JUIN-BP215
MONT-SAINT-AIGNAN CEDEX, 76825
France

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