The Impact of the Big 4 Consolidation on Audit Market Share Equality

2011 ◽  
Vol 30 (1) ◽  
pp. 49-73 ◽  
Author(s):  
Kimberly Dunn ◽  
Mark Kohlbeck ◽  
Brian W. Mayhew
Keyword(s):  
Market Share ◽  
Market Concentration ◽  
Levels Of Analysis ◽  
Big 5 ◽  
Audit Firm ◽  
Audit Market ◽  
Big 4 ◽  
Market Shares ◽  
The Impact ◽  
The City

SUMMARY: We investigate the Big 5 to Big 4 consolidation and its impact on audit market share equality. We extend the GAO’s (2008) study on audit firm industry market concentration to examine whether the remaining Big N firms’ market shares are more equal after the Big 4 consolidation. We also extend the GAO study to examine audit market shares at the city and city-industry levels. We find that while overall market concentration increases, the Big 4 have more equal market shares than the Big 5 had prior to the consolidation at all levels of analysis. The increase in market share equality may explain why there has been inconsistent evidence of an association between market concentration and competition after the consolidation (Feldman 2006; GAO 2008). However, we find that the largest four clients in each market we examine are more likely to share the same auditor after consolidation, which suggests the largest clients face constrained choices.

‘Big 4’ influence on audit market

2020 ◽  
Vol 7 (54) ◽  
pp. 143-156
Author(s):  
Marta Tache
Keyword(s):  
Financial Reporting ◽  
Stock Exchange ◽  
Business Group ◽  
Anova Analysis ◽  
Group Influence ◽  
Audit Firm ◽  
Financial Reporting Standards ◽  
Audit Market ◽  
Big 4 ◽  
The Impact

AbstractThe main purpose of this paper is to determine the impact that Big 4 companies have had after the adoption of International Financial Reporting Standards (IFRS) became mandatory on the audit market. Thus, after thorough research of the specialised studies, the impact of the financial reporting based on IFRS is analysed, while considering that Big 4 companies have created a strong monopoly that led to several changes on the audit market. All the companies listed on the Bucharest Stock Exchange that traded premium shares from 2011 to 2019 were analysed. With the use of ANOVA analysis, this paper verifies if the profitability, shareholders’ funds, firm size and the size of the business group influence the choice of the audit firm. Our results confirm that the choice of an audit firm is influenced by the shareholders’ funds, number of employees and the size of the business group. Besides, this paper presents an analysis of the changes that have occurred from 2011–2019 on the audit market of Romania.

Spatial Competition at the Intersection of the Large and Small Audit Firm Markets

2015 ◽  
Vol 35 (1) ◽  
pp. 23-45 ◽  
Author(s):  
Kenneth L. Bills ◽  
Nathaniel M. Stephens
Keyword(s):  
Market Share ◽  
Spatial Competition ◽  
Audit Fees ◽  
Differential Impact ◽  
Audit Firm ◽  
Audit Market ◽  
Big 4 ◽  
Audit Firms ◽  
The U.S ◽  
Jel Classifications

SUMMARY In this paper, we study spatial competition in the U.S. audit market while accounting for its two-tiered nature. We provide evidence on the differential impact that market share distances within and between the players in the large and small audit markets have on competition. We find that the market share distance from small audit firm competitors has a greater effect on the Big 4's audit fees than distances from other Big 4 competitors. This finding suggests that small audit firms play a significant part in the competitive landscape in local markets. Further, we find that audit fees are increasing with the distance between a small audit firm and its closest competing small audit firm while audit fees are decreasing with the distance between a small audit firm and its closest competing large audit firm. This suggests that while obtaining separation in market space from competing small audit firms reduces competitive pressure from other small audit firms, as a small audit firm gets closer to the market space of a large audit firm it is perceived as being more like the larger audit firm and is able to obtain a fee premium like that attained by the larger audit firms. JEL Classifications: M4; M40; M41; M42; M49.

Changes in Audit Market Competition and the Big N Premium

2012 ◽  
Vol 31 (3) ◽  
pp. 47-73 ◽  
Author(s):  
Elizabeth Carson ◽  
Roger Simnett ◽  
Billy S. Soo ◽  
Arnold M. Wright
Keyword(s):  
European Commission ◽  
Market Power ◽  
Market Competition ◽  
Big 5 ◽  
Audit Market ◽  
Big 4 ◽  
Audit Firms ◽  
House Of Lords ◽  
Audit Fee ◽  
The Impact

SUMMARY We respond to calls for research into the effect of the decline in the number of Big N firms on market power and consequential impact on competition (U.S. Department of the Treasury 2008; European Commission 2010; U.K. House of Lords 2011) by analyzing the change in Big N audit fee premium over the Big 6, Big 5, and Big 4 periods, and across different client segments. Using a large sample of Australian publicly listed companies over the years 1996–2007, we find that while premiums paid to Big N auditors have increased significantly for the Big 4 and Big 5 periods compared to the Big 6 period, the growth has not been shared equally across all client segments. In particular, while the largest global clients pay some of the highest premiums, the increase in premiums for this group in the Big 4 period has been lower than those experienced by other clients. We also observe that premiums paid to industry specialists have declined relative to the Big 6 period, but fee discounts offered to clients switching to a Big N auditor from a non-Big N auditor have increased. In all, we find that the premiums paid by Big N clients increased in line with consolidation in the number of Big N audit firms, but the impact varied across client segments.

scholarly journals Audit Firm Industry Specialization as a Differentiation Strategy: Evidence from Fees Charged to Firms Going Public

2003 ◽  
Vol 22 (2) ◽  
pp. 33-52 ◽  
Author(s):  
Brian W. Mayhew ◽  
Michael S. Wilkins
Keyword(s):  
Market Share ◽  
Cost Savings ◽  
Audit Fees ◽  
Industry Specialization ◽  
Audit Firm ◽  
Differentiation Strategy ◽  
Market Shares ◽  
Audit Firms ◽  
Bargaining Position ◽  
The Impact

This paper examines IPO audit fees to assess the use of industry specialization as a differentiation strategy by audit firms. We extend existing theory on the impact of industry specialization on audit fees by incorporating Porter's (1985) theory of competition and differentiation. We suggest that market share enables audit firms to gain competitive advantages in terms of cost and service. However, the impact of such advantages on fees depends on whether the audit firm has successfully differentiated itself from competitors within client industries. Our results indicate that as audit firm industry market share increases without a differentiation in market share, the audit fee charged for a given IPO decreases. In the context of Porter (1985), this result suggests that the client is able to bargain for a portion of the auditor's cost savings because the audit firm has not successfully differentiated itself from competitors. In contrast, we show that audit firms that possess significantly higher market shares than their industry competitors earn fee premiums, suggesting that audit firms that have successfully differentiated themselves retain a stronger bargaining position with their clients.

scholarly journals Will mandatory audit firm rotation reduce audit market concentration in South Africa?

2021 ◽  
Vol 52 (1) ◽  
Author(s):  
Nicolene Wesson
Keyword(s):  
South Africa ◽  
South African ◽  
Audit Quality ◽  
Market Concentration ◽  
Unintended Consequences ◽  
Calculated Concentration ◽  
Audit Firm ◽  
Audit Market ◽  
Big 4 ◽  
Mandatory Audit Firm Rotation

Purpose: Deconcentrating the audit market was one of the stated objectives of the proposed mandatory audit firm rotation (MAFR) ruling in South Africa. With MAFR being a contentious topic, this study aimed to explore the possible effect of MAFR on audit market concentration in South Africa in anticipation of the implementation thereof in 2023.Design/methodology/approach: A sample of 415 South African listed companies was studied for the period 2010–2018. Data were mainly captured from annual reports. Descriptive statistics and significance testing were performed on calculated concentration ratios and identified audit firm rotations.Findings/results: South African audit market concentration mirrored empirical evidence from most developed countries – with Big 4 audit firms dominating the audit market, whilst a monopoly within the Big 4 audit firm grouping was also evident. Based on observed audit firm concentration and audit firm rotation behaviour, it was anticipated that MAFR might further increase audit market concentration. A concerning result was the sheer scale of audit firm rotations to be carried out in anticipation of MAFR in 2023.Practical implications: This study identified the impairment of audit quality and increased costs as possible unintended consequences of MAFR in South Africa.Originality/value: This study contributed to the limited body of knowledge on the possible effect of MAFR in South Africa. This study proposed alternatives to MAFR and recommended areas for future research to support evidence-based decisions on remedies to address audit quality and audit market concentration in South Africa.

The Impact of Client and Misstatement Characteristics on the Disposition of Proposed Audit Adjustments

2011 ◽  
Vol 30 (2) ◽  
pp. 103-124 ◽  
Author(s):  
Jennifer Joe ◽  
Arnold Wright, and ◽  
Sally Wright
Keyword(s):  
Financial Reporting ◽  
Internal Controls ◽  
Data Availability ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Time Period ◽  
Confidentiality Agreement ◽  
Financial Scandals ◽  
The Impact

SUMMARY We present evidence on the resolution of proposed audit adjustments during a unique time period, immediately following several U.S. financial scandals and surrounding calls for reforms in auditing and financial reporting, which culminated in the passage of the Sarbanes-Oxley Act (SOX). During this period, auditors and their clients faced increased scrutiny from investors and regulators. In addition, auditors had to contend with changed incentives, a new external regulator (i.e., the PCAOB), and upcoming annual PCAOB inspections. We extend prior studies by considering a broader range of factors potentially impacting the resolution of proposed adjustments, including the effect of client tenure, strength of internal controls, and repeat adjustments. Data on 458 proposed adjustments are obtained from the working papers of a sample of 163 audit engagements conducted during 2002 by a Big 4 firm. We find that 24.2 percent of proposed adjustments were subsequently waived. The results indicate audit adjustments are more likely to be waived for clients with whom the audit firm has had a longer relationship, although the pattern does not reflect favoring such clients. We also find that adjustments are more likely to be waived for repeat adjustments. Data Availability: Due to a confidentiality agreement with the participating audit firm the data are proprietary.

scholarly journals The adoption of IFRS in publicly listed enterprises of high and medium capitalization and the impact of the size of the audit firm in Greece

2014 ◽  
Vol 11 (4) ◽  
pp. 707-716 ◽  
Author(s):  
Michail Pazarskis ◽  
Andreas Koutoupis ◽  
George Drogalas ◽  
Konstantinos Tsakiris
Keyword(s):  
Stock Exchange ◽  
Accounting Standards ◽  
Financial Statements ◽  
International Accounting Standards ◽  
Audit Firm ◽  
The Past ◽  
Big 4 ◽  
The Difference ◽  
Athens Stock Exchange ◽  
The Impact

In 2002, developments in the global markets during the past decades have highlighted the need for common accounting standards among companies all around the world so as the financial statements to be comparable. From 2005 onwards the Greek Companies listed on the Athens Exchange was an accounting “revolution” of the 21st century, given the difference in philosophy between the Greek GAAP and the International Accounting Standards-IAS (next, IFRS). This study evaluates the implementation of IFRS on the financial statements of Greek publicly listed companies of high and medium capitalization, which are companies that are included in the FTSE 20 and FTSE 40 indexes of the Athens Stock Exchange-ASE, respectively. Also, for those firms we examined the effect of the size of the audit firm. The research was conducted based on the analysis of thirteen ratios. According to our analysis only few of the ratios have changed significantly. Finally, regarding the impact of the size of the audit firm the results reveal controversy with the present bibliography concerning “Big 4” in comparison with “non-Big 4” firms in Greece

The Role of B2B E-Commerce in Market Share

2018 ◽  
pp. 1281-1294
Author(s):  
Juliette Milgram-Baleix ◽  
Melanie Parravano ◽  
Luis Enrique Pedauga
Keyword(s):  
Market Share ◽  
Manufacturing Firms ◽  
Skilled Workers ◽  
Market Shares ◽  
The Impact ◽  
Business To Business ◽  
Linear Manner ◽  
Panel Threshold Regression ◽  
Positive Effect

This chapter explores the impact of the Internet and Business to Business (B2B) e-commerce on Spanish manufacturing firms' market share while most studies focus on innovation and productivity. Using standard panel estimations, the authors find that firms with their own Web domain and that also carry out B2B e-commerce increase their market share, though this effect is not homogeneous among industries. B2B e-purchases have a more significant (and positive effect) on firms' market share than B2B e-sales have. Unlike other studies, the authors also use a panel threshold regression specification that shows that e-commerce affects market share in a non-linear manner depending on firm's characteristics. Larger firms and firms with higher share of skilled workers are better at increasing their market shares through Internet-based commerce strategies than other firms.

The Complementary and Substitutive Impact of Airbnb on The Bankruptcy of Traditional Hotels in The City of Barcelona

2020 ◽  
pp. 109634802095081
Author(s):  
Mariluz Maté-Sánchez-Val
Keyword(s):  
Hotel Industry ◽  
Market Concentration ◽  
Business Failure ◽  
Failure Model ◽  
Study Case ◽  
The Impact ◽  
The City ◽  
Case Based

The effects of Airbnb on the hotel industry have been debated in different academic forums without a close answer about whether its effects on the hotel industry are complementary or substitutive. To help clarify this issue, this article proposes a business failure model to analyze the impact of Airbnb on the bankruptcy of traditional hotels. In particular, we develop a study case based on a sample of hotels in the city of Barcelona between 2015 and 2018. In addition, we distinguish Airbnb listings’ characteristics such as type of room or market concentration to show an additional understanding of Airbnb effects. Our results show that Airbnb plays a double complementary and substitutive role in traditional hotels’ disruption. In particular, we conclude that Airbnb’s private rooms and the concentration of the Airbnb market in fewer hosts are the main threats to traditional accommodation providers.

The Audit Market Dynamics in a Mandatory Joint Audit Setting: The French Experience

2016 ◽  
Vol 33 (4) ◽  
pp. 463-484 ◽  
Author(s):  
Lamya Kermiche ◽  
Charles Piot
Keyword(s):  
Market Concentration ◽  
Policy Makers ◽  
Audit System ◽  
Audit Market ◽  
Big 4 ◽  
Long Run ◽  
French Experience ◽  
Economic Support ◽  
Different Types ◽  
Potential Benefits

Policy makers in France have considered joint audits as a solution to mitigate the audit market concentration and the “systemic” risk associated with Big 4 auditors. We implement a Markovian analysis where audit clients chose between different types of combinations across Big 4 and smaller auditors. Our main findings support the view that the French joint audit system is effective in maintaining market openness and in mitigating the Big 4 domination in the long run. An investigation of the determinants driving changes in joint audit combinations suggests little economic support in favor of two Big 4 combinations, whereas changes in audit clients’ agency costs (e.g., higher ownership concentration) tend to explain the performance of mixed and two non-Big 4 combinations. Overall, this study supports the European Commission’s position on the potential benefits of joint audits in mitigating the market concentration; it also suggests that it might not be necessary to impose mixed joint audits to achieve that objective.

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