Lucky Or Good? Audit Market Concentration And The Emergence of The Big 4 In Australia

51 Pages Posted: 2 May 2014 Last revised: 29 Oct 2018

See all articles by Colin Ferguson

Colin Ferguson

University of Melbourne - Faculty of Business and Economics (Deceased)

Matt Pinnuck

University of Melbourne - Department of Accounting and Business Information Systems

Douglas J. Skinner

The University of Chicago - Booth School of Business

Date Written: October 1, 2018

Abstract

We use a long time series from Australia to investigate the determinants and consequences of audit market concentration. The time series begins when the market is still fragmented and extends through recent years, by which time the Big 4 is dominant. We show that increasing skewness in the size of public companies is associated with increased concentration of the audit market. We also show that the emergence of the Big N is associated with the growth in non-audit services, and provide evidence of increasing returns to scale in auditing that become more pronounced over time. The results suggest that the primary driver of concentration is the growth of the largest public companies and the associated need for audit firm scale. The rate of audit switching and the extent of fee discounting increase over time, which provides some assurance that the audit market remains competitive in spite of greater concentration.

Keywords: auditing, market concentration, Big 4, Big N

JEL Classification: L11, L51, M21, M42

Suggested Citation

Ferguson, Colin and Pinnuck, Matthew and Skinner, Douglas J., Lucky Or Good? Audit Market Concentration And The Emergence of The Big 4 In Australia (October 1, 2018). Chicago Booth Research Paper No. 14-13. Available at SSRN: https://ssrn.com/abstract=2431727 or http://dx.doi.org/10.2139/ssrn.2431727

Colin Ferguson

University of Melbourne - Faculty of Business and Economics (Deceased)

Matthew Pinnuck

University of Melbourne - Department of Accounting and Business Information Systems ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia

Douglas J. Skinner (Contact Author)

The University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
494
Abstract Views
3,028
rank
56,281
PlumX Metrics