Differential Effects of Market Concentration on Oligopolistic and Atomistic Segments: Evidence of Audit Fees and Audit Quality

Abstract

This study divides the audit market into the oligopolistic and atomistic segments at MSA level and examine whether the effect of audit market concentration on audit fees and audit quality is the same in these two segments. I find that the market concentration raises the audit fees in the oligopolistic segment. In contrast, the market concentration lowers audit fees, but raises the audit quality in the atomistic segment. My findings reveal that audit market concentration only reduces the competition among oligopolistic segment. In contrast, the atomistic segment becomes more compressed and more competitive in a highly concentrated market.