An empirical test of spatial competition in the audit market

Numan, Wieteke; Willekens, Marleen

doi:10.1016/j.jacceco.2011.10.002

Cited by 222 publications

(232 citation statements)

References 33 publications

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“…However, audit firms that have not differentiated themselves as market leaders find it difficult to profit from economies of scale because price competition forces them to share their cost savings with their clients. Our discussions with partners consistently suggest that audit firms have been competing on price during the post-SOX era, and academic research suggests that auditors do, in fact, receive lower audit fees when competition is higher (Chaney et al 2003;Kallapur et al 2010;Numan and Willekens 2012). Unlike the consistently negative relationship between competition and fees, however, predictions extending to audit quality can go in either direction.…”

Section: Audit Competition and Audit Qualitymentioning

confidence: 72%

Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

2011

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SUMMARY:We examine the relationship between auditor competition and the likelihood of financial restatements that occur as a result of failures in the application of generally accepted accounting principles (GAAP). Policy makers and audit market participants have expressed concern that the current level of auditor competition is low, resulting in a negative impact on audit quality. However, we find that restatements are more likely to occur in metropolitan statistical areas (MSAs) that have higher auditor competition. The association between audit market competition and restatements is statistically and economically significant. Our finding of a positive relationship between the likelihood of restatement and audit market competition is relevant to the ongoing debate regarding audit quality and the concentration of audit markets.

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Section: Audit Competition and Audit Qualitymentioning

confidence: 72%

Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

2011

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“…Although most of the arguments advanced by regulatory bodies have supported the idea of increased competition, the 2008 GAO report commissioned by Congress found no evidence that high audit market concentration (i.e., low auditor competition) results in decreased audit quality. Consistent with this notion, Newton et al (2013) find that restatements are more likely in areas where auditor competition is high, presumably due to the fact that audit firms in such markets are forced to compete heavily on fees (Chaney, Jeter, and Shaw 2003;Numan and Willekens 2012).…”

Section: Research Questionsmentioning

confidence: 83%

Internal Control Opinion Shopping and Audit Market Competition

et al. 2014

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This study examines whether audit clients engage in internal control opinion shopping activities and whether audit market competition appears to facilitate those activities. Regulators have long been concerned about the impact of both audit market competition and opinion shopping on audit quality. We adopt the framework developed in Lennox (2000) to construct a proxy to measure the tendency that clients engage in internal control opinion shopping activities. Our empirical results suggest that clients are successful in shopping for clean internal control opinions. In addition, we find evidence that internal control opinion shopping occurs primarily in competitive audit markets. Finally, our results indicate that among auditor dismissal clients, opinion shopping is more likely to occur when dismissals are made relatively late during a reporting period and when audit market competition is high. Our findings have implications for the current policy debate regarding audit quality and audit market competition.

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“…Numan and Willekens (2012) find that audit fee is higher when the industry market share distance to its next closest competitor increases [37]. The variables used in audit fee premium (Equation (1) and Equation (2)) regression models are summarized in Table 1.…”

Section: Audit Fee Determinants and Control Variablesmentioning

confidence: 99%

Big N and Non-Big N Audit Pricing Competitiveness in Japan during Transition from Big 4 to Big 3 Period

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The 2006 dissolution of PwC ChuoAoyama significantly changed market share composition of Japanese audit firms which marked the transition from Big 4 period to Big 3 period. This study aims to investigate audit market pricing competitiveness between Big N and non-Big N auditors using a sample of Japanese firms listed in the First Section of Tokyo Stock Exchange during the transition from Big 4 period (2004)(2005) to Big 3 period (2006)(2007)(2008)(2009)(2010)(2011). This paper analyzes audit market pricing competitiveness between Big N and non-Big N auditors by employing panel fixed effects multivariate regression with audit fee as the dependent variable and interaction between audit fee premium and client segment size as variable of interest while controlling for other variables affecting audit fee. The empirical results indicate a non-competitive audit pricing market between Big N and non-Big N auditors where Big N auditors earn increasingly higher audit fee as client segment size becomes larger.

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An empirical test of spatial competition in the audit market

Cited by 222 publications

References 33 publications

Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

Internal Control Opinion Shopping and Audit Market Competition

Big N and Non-Big N Audit Pricing Competitiveness in Japan during Transition from Big 4 to Big 3 Period

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