The revenue persistence of US accounting firms: impacts of SOX and financial crisis

Abstract

Purpose

Typical accounting firms offer three types of accounting services to their clients: accounting and auditing (AA), tax (TAX) and management advisory services (MAS). Each accounting service has a different revenue persistence. Moreover, revenue persistence is affected by exogenous events such as new regulations (e.g. Sarbanes-Oxley Act [SOX] in 2002) and market conditions (e.g. the financial crisis of 2008). This paper aims to examine the revenue persistence of accounting services and how it is affected by SOX and the financial crisis.

Design/methodology/approach

Using 742 firm-year observations from 100 of the largest US accounting firms from 1999 to 2015, this paper examines whether revenue from AA, TAX and MAS has different degrees of persistence and how SOX and the financial crisis in 2008 change the revenue persistence of each accounting service.

Findings

This paper finds that MAS generates more persistent revenue than AA and TAX. SOX enhances the revenue persistence of MAS. The financial crisis makes revenue from AA less persistent than during the pre-financial crisis period.

Originality/value

This paper contributes to the understanding of the revenue persistence of accounting services and the impact of exogenous events such as SOX and the financial crisis of 2008.

Citation

Song, K. and Whang, E. (2019), "The revenue persistence of US accounting firms: impacts of SOX and financial crisis", Pacific Accounting Review, Vol. 31 No. 3, pp. 523-548. https://doi.org/10.1108/PAR-11-2018-0090