Audit Market Consolidation and Client Innovation

Posted: 10 Jan 2019 Last revised: 19 Jan 2020

See all articles by Qihui Gong

Qihui Gong

Zhejiang University

Oliver Zhen Li

National University of Singapore (NUS)

Yupeng Lin

National University of Singapore

Liansheng Wu

Peking University - Guanghua School of Management

Date Written: December 31, 2018

Abstract

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

Gong, Qihui and Li, Oliver Zhen and Lin, Yupeng and Wu, Liansheng, Audit Market Consolidation and Client Innovation (December 31, 2018). Available at SSRN: https://ssrn.com/abstract=3308340 or http://dx.doi.org/10.2139/ssrn.3308340

Qihui Gong

Zhejiang University ( email )

38 Zheda Road
Hangzhou, Zhejiang 310058
China

Oliver Zhen Li

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

Yupeng Lin (Contact Author)

National University of Singapore ( email )

15 Kent ridge drive
Singapore
Singapore

HOME PAGE: http://sites.google.com/site/scottlinyupeng/

Liansheng Wu

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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