Audit Market Segmentation –The Impact of Mid-Tier Firms on Competition

29 Pages Posted: 11 Oct 2014

See all articles by Dirk Simons

Dirk Simons

University of Mannheim - Accounting and Taxation

Nicole Zein

University of Mannheim

Date Written: October 9, 2014

Abstract

This analysis’ goal is to characterize the impact of mid-tier auditors on competition and average supplied audit quality. The major result of our analysis is the following: Auditors’ flexibilities with respect to clients’ complexity determine the offered audit quality levels and thus the average supplied audit quality. Defining a model-endogenous quality measure, we show that for some instances the mid-tier auditor improves average audit quality, but for other instances fails to do so. The result could be of special interest for standard setters, e.g. the European Commission, which is currently revising EU audit regulation. Further, the analysis may serve as an instrument to analyze economic consequences of future changes of regulation.

Keywords: Audit Market Structure, Audit Supply Concentration, Big-4, Hotelling, Mid-tier Auditors, Product Differentiation, Segmentation

JEL Classification: M42, D43

Suggested Citation

Simons, Dirk and Zein, Nicole, Audit Market Segmentation –The Impact of Mid-Tier Firms on Competition (October 9, 2014). Available at SSRN: https://ssrn.com/abstract=2507889 or http://dx.doi.org/10.2139/ssrn.2507889

Dirk Simons (Contact Author)

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Nicole Zein

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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