Competition for Andersen's Clients

48 Pages Posted: 9 May 2006 Last revised: 7 Oct 2008

See all articles by Mark J. Kohlbeck

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting

Brian W. Mayhew

University of Wisconsin - Madison - Department of Accounting and Information Systems

Pamela R. Murphy

Queen's University - Smith School of Business; Queen's University

Michael S. Wilkins

University of Kansas

Multiple version iconThere are 2 versions of this paper

Date Written: April 19, 2006

Abstract

We examine competition for Andersen's public clients during and after its failure in 2002. This setting provides a natural experiment to examine audit market dynamics at the local level. We construct a database documenting Big4 purchases of local Andersen offices. After exploring the factors associated with office purchases, we examine the impact of office purchases on public client market share gains and changes in audit fees. We find that three Big4 firms - Deloitte, Ernst & Young, and KPMG - purchased approximately 60% of Andersen's offices while PricewaterhouseCoopers did not purchase any. The probability that a firm purchased a specific office is greater in markets where the acquiring firm: 1) already had a presence, 2) had a lower ratio of local Andersen clients to the purchaser's clients, and 3) had already acquired relatively more local former Andersen public clients than other firms prior to the purchase. Our fee analysis expands the United States Government Accountability Office (GAO) post-Andersen audit market study by documenting that the former Andersen clients' change in audit fees is associated with the differences in client acquisition method.

Keywords: Andersen, market concentration, competitive strategy, audit

JEL Classification: M49, L84

Suggested Citation

Kohlbeck, Mark J. and Mayhew, Brian W. and Murphy, Pamela R. and Wilkins, Michael S., Competition for Andersen's Clients (April 19, 2006). Available at SSRN: https://ssrn.com/abstract=900130 or http://dx.doi.org/10.2139/ssrn.900130

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting ( email )

777 Glades Avenue
KH 119
Boca Raton, FL 33431-0991
United States
561-297-1363 (Phone)

Brian W. Mayhew (Contact Author)

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-2714 (Phone)
608-263-0477 (Fax)

Pamela R. Murphy

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Queen's University ( email )

Kingston, Ontario K7L 3N6
Canada
6135333260 (Phone)

Michael S. Wilkins

University of Kansas ( email )

Capitol Federal Hall
1654 Naismith Dr.
Lawrence, KS 66045
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
318
rank
89,840
Abstract Views
2,296
PlumX Metrics