The Audit Quality Effects of Small Audit Firm Mergers in the United States

55 Pages Posted: 26 Jul 2015 Last revised: 9 Oct 2018

See all articles by Brant E. Christensen

Brant E. Christensen

University of Oklahoma

Kecia Smith

Virginia Tech

Dechun Wang

Texas A&M University

Devin Williams

University of Illinois; University of Florida

Date Written: September 6, 2018


Increased audit regulation, coupled with practitioner reports of “hyper-acquisitive” behavior among smaller firms, creates a dynamic environment in which to assess changes in the U.S. audit market. Against this backdrop, we examine the consequences of small audit firm mergers on audit quality, a topic about which little is known. Using a quasi difference-in-differences research design, we find that among clients of audit firms involved in mergers, audit quality declines around merger events. Further, it appears that this decline in audit quality primarily comes from the acquiring firm’s legacy clients, suggesting the acquiring firms are distracted from maintaining the audit quality of their existing client base. To further refine our inferences, we estimate the determinants of being involved in a merger. We find that acquiring audit firms are ex-ante growing more quickly and operate in more competitive markets. We find evidence that these motivating factors moderate the effect of mergers on audit quality, but the direction and extent of these moderating effects are contingent on different proxies of audit quality. Taken together, our results provide evidence regarding the negative consequences of small audit firm mergers in the United States.

Keywords: Mergers, public company audit market, audit quality, audit regulation

JEL Classification: M42

Suggested Citation

Christensen, Brant E. and Smith, Kecia and Wang, Dechun and Williams, Devin, The Audit Quality Effects of Small Audit Firm Mergers in the United States (September 6, 2018). Mays Business School Research Paper No. 2635605. Available at SSRN: or

Brant E. Christensen

University of Oklahoma ( email )

Norman, OK 73019-4004
United States

Kecia Smith (Contact Author)

Virginia Tech ( email )

Pamplin College of Business
Blacksburg, VA 24061
United States
(540) 231-6359 (Phone)

Dechun Wang

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

Devin Williams

University of Illinois ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

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