The Effects of Non-Big 4 Mergers on Audit Efficiency and Audit Market Competition

58 Pages Posted: 18 Jun 2019 Last revised: 9 Apr 2021

See all articles by Andrew Kitto

Andrew Kitto

University of Massachusetts Amherst; affiliation not provided to SSRN

Date Written: April 9, 2021


This study examines whether a recent wave of mergers between small and midsize accounting firms influences audit market competition by increasing the number of firms that can efficiently or effectively compete with larger rivals. Using proprietary data provided by the PCAOB, I find evidence that in-market mergers (involving auditors that operate in the same geographic market) generate efficiencies that are reflected in a post-merger reduction in audit hours but not audit quality. For both in-market and out-of-market mergers, clients switching to post-merger firms are more likely to be accelerated filers and are significantly larger in terms of several proxies for size and complexity. Lastly, I examine realization rates and find that an increase in market-level merger activity is associated with lower profitability of Big 4 firms operating in the same market. These findings suggest that recent mergers have actually increased competition in segments of the audit market dominated by the Big 4 despite already high concentration and concerns about a lack of sufficient competition.

Keywords: auditing, audit fees, competition, efficiency, mergers, PCAOB

JEL Classification: M41, M42, D43, G34

Suggested Citation

Kitto, Andrew and Kitto, Andrew, The Effects of Non-Big 4 Mergers on Audit Efficiency and Audit Market Competition (April 9, 2021). Available at SSRN: or

Andrew Kitto (Contact Author)

affiliation not provided to SSRN

University of Massachusetts Amherst ( email )

Amherst, MA 01003-4910
United States

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