Audit Market Consolidation and Client Innovation
Posted: 10 Jan 2019 Last revised: 19 Jan 2020
Date Written: December 31, 2018
Examining a drastic evolution of the audit market in China, we find that auditor mergers enhance clients’ innovation. This effect is more pronounced when the acquirer in a merger is an international Big 4 auditor or when a merger leads to a greater increase in auditor size, supporting the positive certification effect of large auditors. Further cross-sectional analyses show that the innovation-enhancing effect of auditor mergers takes place via alleviating financial constraints and mitigating managerial myopia. In sum, we offer first-hand evidence that large auditors stemming from audit market consolidation bring benefits to the real economy and contributes to economic growth.
Keywords: Audit Market Consolidation; Real Effect; Innovation; Auditor Certification; China
JEL Classification: D82; G14; G34; M42
Suggested Citation: Suggested Citation