Audit Market Consolidation and Client Innovation

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

Gong, Qihui and 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