Audit Market Concentration and Audit Quality

Audit Market Concentration and Auditor Tolerance for Earnings Management*

“…Using a cross‐country research design, Francis et al (2012) find that in countries where there is greater concentration within the dominant Big 4 group, clients exhibit lower earnings (audit) quality. By contrast, Kallapur, Sankaraguruswamy, and Zang (2010) find that higher concentration in metropolitan U.S. audit markets is associated with higher accruals (audit) quality during 2000–2006. Our results using focused (conditional) samples based on U.S. clients’ incentive (as well as the means) to meet or beat the analysts’ consensus earnings forecast suggests that in fact higher auditor concentration is associated with lower earnings (audit) quality.…”

Accounting fraud, auditing, and the role of government sanctions in China

“…The number of listed companies in China is small relative to the number of qualified auditors when compared with the U.S. Kallapur, Sankaraguruswamy, and Zang (2010) suggest that audit market dispersion affects audit quality. In untabulated results we augment Eq.…”

Structure and Nature of Competition in the Market for Financial Audit Services in Mexico

“…Caban-García and Cammack (2009) have demonstrated an increase of concentration in the year after the merger of PriceWaterhouse and C&L and takeover of Arthur Andersen by Ernst & Young, and also have demonstrated a decreasing concentration rates two years after the merger. Kallapur, Sankaraguruswamy and Zang (2010) and Dunn et al, (2011) in their research found an increasing concentration of Big 4 over time, and also found an increasing equivalence of market shares among Big 4. Although a little later than in the United States, the accounting research literature has also been collecting a series of papers on the study of the audit market in the rest of the world.…”

“…The study of the financial audit market structure, its competitive nature and its high level of concentration have been analyzed by a significant number of empirical studies collected by the accounting research literature (Zeff and Fossum, 1967;Rhode, Whitsell and Kelsey, 1974;Danos and Eichenseher, 1986;Moizer and Turley, 1987;Beattie and Fearnley, 1994;Wolk, Michelson and Wootton, 2001;Thavapalan, Moroney, and Simnett, 2002;Beattie, Goodacre and Fearnley, 2003;Carrera, Gutierrez and Carmona, 2005;Feldman, 2006;McMeeking, Peasnell and Pope, 2007;McMeeking, 2007;García Benau and Novejarque, 2009;Caban-García and Cammack (2009) ;Kallapur, Sankaraguruswamy and Zang, 2010;Dunn, Kohlbeck and Mayhew, 2011). The high level of concentration in the market for financial audit services has caused a negative impact, on the world professional practices, which are currently evident and affect the very essence of the professional practice of financial audit services.…”