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
Date Written: October 1, 2018
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: Suggested Citation