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Article
Publication date: 1 September 2003

Vivien Beattie, Alan Goodacre and Stella Fearnley

While concentration measures are a good indicator of market structure, the link with competitivenessis more complex than often assumed. In particular, the modern theory of…

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1995

Abstract

While concentration measures are a good indicator of market structure, the link with competitiveness is more complex than often assumed. In particular, the modern theory of industrial organisation makes no clear statement regarding the impact of concentration on competition ‐ the focus of this paper is concentration and no inferences are made about competitive aspects of the market. The extent and nature of concentration within the UK listed company audit market as at April, 2002 and, pro forma, after the collapse of Andersen is documented and analysed in detail (by firm, market segment and industry sector). The largest four firms held 90 per cent of the market (based on audit fees) in 2002, rising to 96 per cent with the demise of Andersen. A single firm, Pricewaterhouse‐Coopers, held 70 per cent or more of the share of six out of 38 industry sectors, with a share of 50 per cent up to 70 per cent in a further seven sectors. The provision of non‐audit services (NAS) by incumbent auditors is also considered. As at April 2002, the average ratio of non‐audit fees (paid to auditor) to audit fees was 208 per cent, and exceeded 300 per cent in seven sectors. It is likely, however, that disposals by firms of their management consultancy and outsource firms, combined with the impact of the Smith Report on audit committees will serve to reduce these ratios. Another finding is that audit firms with expertise in a particular sector appeared to earn significantly higher nonaudit fees from their audit clients in that sector. The paper thus provides a solid empirical basis for debate. The subsequent discussion considers the implications for companies and audit firms of the high level of concentration in the current regulatory climate, where no direct regulatory intervention is planned.

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Journal of Financial Regulation and Compliance, vol. 11 no. 3
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 3 October 2016

Yi-Fang Yang and Yahn-Shir Chen

The purpose of this paper is to examine the direct and interactive effects of audit service quality and audit market concentration on performance of public accounting…

Abstract

Purpose

The purpose of this paper is to examine the direct and interactive effects of audit service quality and audit market concentration on performance of public accounting firms in Taiwan.

Design/methodology/approach

Empirical data of this study come from registered public accounting firms in Taiwan, an industrial data. From the perspective of industrial economics and based on the structure-conduct-performance paradigm (Cowling and Waterson, 1976), this study use OLS to test the linear regression equation.

Findings

Empirical results indicate that both audit service quality and audit market concentration have positive effects on performance. The interaction terms between audit service quality and audit market concentration are positively related to performance.

Practical implications

This documents that human capital is the core resource in public accounting firms which could enhance performance through higher audit service quality under intense market competition. Specifically, facing increasingly competitive audit market, public accounting firms response to the hostile situation by employing auditors with higher educational level, more work experience, with professional licenses, and taking more continuing professional education.

Originality/value

Few previous researches consider the effects of either market concentration or audit service quality on firm performance. This study simultaneously examines the relation among audit service quality, audit market concentration, and performance of public accounting firms. With the results, this study contributes knowledge to human resource and quality management-related literatures.

Details

International Journal of Quality & Reliability Management, vol. 33 no. 9
Type: Research Article
ISSN: 0265-671X

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Article
Publication date: 16 June 2021

Hojat Mohammadi, Mahdi Salehi, Meysam Arabzadeh and Hassan Ghodrati

This paper aims to assess auditor narcissism’s effect on audit market competition (auditor concentration, clients’ concentration and competitive pressure).

Abstract

Purpose

This paper aims to assess auditor narcissism’s effect on audit market competition (auditor concentration, clients’ concentration and competitive pressure).

Design/methodology/approach

This paper’s method is descriptive-correlational based on published information from listed firms on the Tehran Stock Exchange from 2012 to 2018 using a sample of 188 firms (1,310 observations). The method used for hypothesis testing is linear regression using panel data.

Findings

The results show a negative and significant relationship between auditor narcissism and audit market competition and its indices, including auditor concentration, clients’ concentration and competitive pressure. Moreover, a positive and significant relationship was observed between audit quality and audit market competition and its indices, including auditor concentration, client concentration and competitive pressure.

Originality/value

To analyzes competition indices in the audit market (auditor concentration, clients’ concentration and competitive pressure). The variable is assessed once more using the exploratory factor analysis of the so-called three variables single variable, named audit market competition. So the central question of the study is investigated within a broader sense. Moreover, as the present study is carried out in the emergent financial markets with extremely competitive audit markets to figure out the effect of auditors’ intrinsic characteristics on such markets’ competitiveness, it can provide useful information in this field.

Details

Management Research Review, vol. 44 no. 11
Type: Research Article
ISSN: 2040-8269

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Article
Publication date: 8 August 2019

Iain Clacher, Alan Duboisée de Ricquebourg and Amy May

While recently introduced EU regulation on the statutory audit of public interest entities (PIEs) aims to improve audit competition and quality, its success and impact…

Abstract

Purpose

While recently introduced EU regulation on the statutory audit of public interest entities (PIEs) aims to improve audit competition and quality, its success and impact depends on the definition of a PIE applied across the various EU Member States. In the UK, even though little is known about their auditing choices, these changes will not apply to most private companies despite their importance to the wider economy. The purpose of this paper is to provide an in-depth analysis of the private company audit market and examine the lobbying behaviour of the accounting profession around the definition of a PIE in the UK.

Design/methodology/approach

Using a large panel of independent private company audits in the UK and a textual analysis of submitted comment letters to a government consultation on the new regulation, this paper presents a comprehensive analysis of the audit market for private companies by measuring supplier concentration using four different measures of market share, and of the lobbying behaviour of the accounting profession.

Findings

There are two main findings. First, the private company audit market is characterised by low auditor switching rates along with a tight oligopoly of the largest independent private company audits maintained by the Big Four audit firms. Second, the lobbying behaviour of accounting and audit firms sought, and succeeded, to limit the scope of the definition of a PIE in the UK, consistent with the theoretical predictions of monopoly capitalism and the theory of professions.

Originality/value

The paper shows that the definition and scope of a PIE needs revisiting both within the UK and across all EU Member States, with a view to including more of these economically important private companies and highlights the policy challenge of increasing competition and choice in a concentrated audit market.

Details

Accounting, Auditing & Accountability Journal, vol. 32 no. 5
Type: Research Article
ISSN: 0951-3574

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Article
Publication date: 9 January 2007

Kevin P. McMeeking

The purpose of this paper is to examine the relationship between market structure, competition and pricing in the UK accounting services market. This association is…

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3400

Abstract

Purpose

The purpose of this paper is to examine the relationship between market structure, competition and pricing in the UK accounting services market. This association is important because mergers amongst the leading firms and the collapse of Arthur Andersen have reduced the number of international accounting firms to four.

Design/methodology/approach

The paper examines concentration ratios (CR) and the fees charged by accounting firms. The data used encompass the period when the number of leading suppliers fell from eight to four.

Findings

FTSE100 consultancy fees increased rapidly in the 1990s. Independence concerns, corporate scandals and additional legislation contributed to a sharp increase in audit fees and a significant decrease in consultancy fees since the turn of the century. The international accounting firms responded to saturation of the FTSE100 market by targeting the small and medium‐sized client sectors as avenues for further growth. The audit market is competitive at the initial tender stage but concentration has allowed firms to significantly increase audit fees on repeat engagements.

Research limitations/implications

A number of theoretical and empirical limitations are acknowledged that could further increase the statistical power of the tests.

Practical implications

The study should be of interest to regulatory bodies, auditors, audit clients and academics.

Originality/value

This paper fills a gap in the literature regarding the evolution of CRs and accounting service fees over a significant time frame.

Details

Managerial Auditing Journal, vol. 22 no. 2
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 7 August 2017

Paula Isabel Rodriguez Castro, Emiliano Ruiz Barbadillo and Estíbaliz Biedma López

The purpose of this paper is to analyse whether the major international audit firms reach collusive agreements in Spain, in order to exercise market power and impose…

Abstract

Purpose

The purpose of this paper is to analyse whether the major international audit firms reach collusive agreements in Spain, in order to exercise market power and impose higher prices than those of competitors. According to the traditional theory of oligopoly, the ability to achieve these agreements is dependent primarily on the high level of market concentration, so that multiple studies have analysed the relationship between concentration and prices. However, the concentration has serious limitations to infer collusion and therefore the exercise of market power (Dedman and Lennox, 2009).

Design/methodology/approach

Based on an alternative current of the theory of industrial organisation, the authors use measures of industrial mobility as a measure of collusion or rivalry of firms in oligopolistic markets.

Findings

The results reveal that international audit firms do not reach collusive agreements to limit competition between them.

Social implications

According to the empirical evidence obtained, the measures taken by the regulatory bodies to avoid market concentration would not be necessary or efficient and they would have significant costs for the audit market (GAO, 2003, 2008; FRC, 2009; European Commission, 2010; Competition Commission, 2013).

Originality/value

To the authors’ knowledge, this is the first study to introduce mobility measures to explain market collusion and the exercise of market power in the audit market.

Propósito

El objetivo de este trabajo es analizar si las Grandes Firmas Internacionales de auditoría alcanzan acuerdos colusivos en España con la finalidad de ejercer poder de mercado e imponer precios superiores a los de los competidores. Según la teoría tradicional del oligopolio, la capacidad para alcanzar estos acuerdos se hace depender fundamentalmente del alto nivel de concentración del mercado, por lo que múltiples estudios han analizado la relación entre concentración y precios. Sin embargo, la concentración presenta serias limitaciones para inferir la colusión y, por tanto, el ejercicio del poder de mercado (Dedman y Lennox, 2009).

Diseño/metodología/enfoque

Basándonos en una corriente alternativa de la teoría de la organización industrial, utilizamos medidas de movilidad industrial como medida de la colusión o rivalidad de las empresas en mercados oligopolistas.

Resultados

Nuestros resultados revelan que las firmas internacionales de auditoría no alcanzan acuerdos colusivos para limitar la competencia entre ellas.

Implicaciones sociales

Según la evidencia empírica que obtenemos, las medidas adoptadas por los organismos reguladores con la finalidad de desconcentrar el mercado, las cuales presentan importantes costes para el mercado de auditoría, no resultarían ni necesarias ni eficientes (GAO, 2003, 2008; FRC, 2009; Comisión Europea, 2010; Competition Commission, 2013).

Originalidad/valor

Hasta donde conocemos, éste es el primer estudio que introduce medidas de movilidad del mercado para explicar la colusión y el ejercicio del poder de mercado en el mercado de auditoría.

Details

Academia Revista Latinoamericana de Administración, vol. 30 no. 3
Type: Research Article
ISSN: 1012-8255

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Article
Publication date: 9 January 2007

Charles Piot

The French law uses joint‐auditing as an audit quality device. This regulation also indirectly preserves market competition by reducing the domination of the large audit

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3045

Abstract

Purpose

The French law uses joint‐auditing as an audit quality device. This regulation also indirectly preserves market competition by reducing the domination of the large audit firms. However, concerns emerge about the effects of recent auditor mergers on the effectiveness of joint‐auditing: the reduced number of audit suppliers may favour the development of too frequent joint‐auditing collaborations, causing routine cross‐reviews and interdependencies between co‐auditors. This study aims to address this issue.

Design/methodology/approach

The market shares, individual performance, and joint‐audit interconnections (attraction‐repulsion indices) of the main audit networks in France are investigated for the year 1997 and again for the year 2003.

Findings

Despite the concentration of the audit market for listed companies globally, descriptive market analyses suggest that competition in the audit market has not decreased: the PricewaterhouseCoopers merger in 1998 did not produce any gain in market share to the newly‐formed network; the French member of Arthur Andersen suffered an effective erosion of its audit portfolio resulting from the infamous Enron case; and some national audit networks have maintained significant market positions. Contrary to expectations, the increased concentration did not result in abnormally frequent collaborations between the main audit firms.

Research limitations/implications

The joint‐auditing interconnections are based on the number of common audit clients, and this approach does not take into account the different sizes of the auditees.

Originality/value

This paper is an original approach of auditor concentration in a joint‐auditing environment. To regulators, the results of this study suggest that joint‐auditing can be utilised as a mechanism to preserve market competition and thus potentially maintaining audit quality.

Details

Managerial Auditing Journal, vol. 22 no. 2
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 11 May 2020

Mahdi Salehi, Mahdi Saravani and Safoura Rouhi

This study aims to study the relationship between audit components and collusion in the audit market.

Abstract

Purpose

This study aims to study the relationship between audit components and collusion in the audit market.

Design/methodology/approach

The statistical population of the study includes 130 listed firms on the Tehran Stock Exchange from 2012-2017. The data tested using multivariate regression.

Findings

The findings of the study indicate that there is a positive and significant relationship between Rank A audit firms, competition and audit fees and audit market adaptability. The relationship standard fees and audit market adaptability, however, is negative and significant. Moreover, the results of the study show that there is no significant relationship between opinion shopping, type of audit report, audit market concentration, and agency costs with audit market adaptability.

Originality/value

The current study fills the gap in this area, and the results of the study may give direction to researchers and policy makers.

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Article
Publication date: 1 October 2019

Kimberly Dunn, Mark Kohlbeck and Brian Mayhew

This paper aims to evaluate policymakers’ concerns about the lack of competition in highly concentrated markets for public company audits by examining the association…

Abstract

Purpose

This paper aims to evaluate policymakers’ concerns about the lack of competition in highly concentrated markets for public company audits by examining the association between audit fees and the inequality of Big 4 market shares at both the USA national-industry and city-industry levels.

Design/methodology/approach

Using publicly available data, this paper uses regression analysis to examine publicly available data to test research hypotheses related to the association between audit market inequalities and audit fees at both the USA national-industry and city-industry levels.

Findings

The findings support a U-shaped association between national-industry inequality and audit fees. As inequality initially increases, fees decrease; however, as inequality becomes increasingly large fees increase. The city-industry level analysis shows the opposite pattern. The results are consistent with capacity constraints at the national-industry level that are less binding at the city-industry level.

Research limitations/implications

This study provides evidence that market inequality has a non-linear association with audit price and contributes to the limited findings in industrial organization research on the importance of market share inequality in highly concentrated markets.

Originality/value

This study provides new insights into the growing body of research on audit market structure by documenting that national-industry and city-industry analysis provides different insights into the market structure. In addition, the sample period for this study (2004-2017) addresses the General Accounting Office (GAO) concern about the lack of a stable audit market in the period it examined (GAO, 2008, p. 94) and finds evidence of market structure effects not present in the earlier GAO studies (GAO, 2003, 2008).

Details

Managerial Auditing Journal, vol. 34 no. 9
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 1 January 2006

C.K.M. Pong and S. Burnett

Concern has been raised over the impact of the PricewaterhouseCoopers merger on the competitiveness of the market for audit services. This paper aims to examine the market

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5679

Abstract

Purpose

Concern has been raised over the impact of the PricewaterhouseCoopers merger on the competitiveness of the market for audit services. This paper aims to examine the market share and audit pricing of PricewaterhouseCoopers in the UK before and after its merger. It also seeks to examine the change in consultancy services income of PricewaterhouseCoopers since its merger.

Design/methodology/approach

Numerical data analysis is performed. In particular, concentration indices and audit fee model (OLS) are used.

Findings

The increase in audit services market concentration as a result of the merger has not led to an increase in audit prices. Although the merger has enabled PricewaterhouseCoopers to increase its market leadership in regions and in industrial sectors, neither industry leadership nor city leadership generated a premium in audit pricing. An analysis of non‐audit services fee income leads to the rejection of claims by critics that the main purpose of the merger is to enable PricewaterhouseCoopers to generate more non‐audit services income from their audit clients. Its non‐audit fee income has decreased since its merger.

Research limitations/implications

Audit fee models used in the literature have not included the behavioural aspects of audit pricing, for example, client‐auditor relationship. In addition, due to data availability, consultancy fee income of PricewaterhouseCoopers before the merger cannot be analysed.

Originality/value

The research provides useful information for the accountancy profession and the regulators.

Details

Managerial Auditing Journal, vol. 21 no. 1
Type: Research Article
ISSN: 0268-6902

Keywords

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