The Evolution of Audit Market Structure and the Emergence of the Big 4: Evidence from Australia

58 Pages Posted: 2 May 2014 Last revised: 12 Jul 2023

See all articles by Colin Ferguson

Colin Ferguson

University of Melbourne - Faculty of Business and Economics (Deceased)

Matt Pinnuck

University of Melbourne - Department of Accounting

Douglas J. Skinner

The University of Chicago - Booth School of Business

Date Written: May 15, 2023

Abstract

We use a long time-series from Australia to investigate the economic determinants of audit market concentration. We show that increased skewness in the size of public companies is associated with increased concentration, and that the emergence of the Big N is associated with various changes (relative to non-Big N firms) which suggest these firms made sunk cost investments to differentiate and grow. These changes occurred around the time the profession lifted restrictions on advertising and promotion, further consistent with this view. Collectively, our evidence offers new insights into why the audit market is concentrated and its competitive effects.

Keywords: auditing, market concentration, Big 4, Big N

JEL Classification: L11, L51, M21, M42

Suggested Citation

Ferguson, Colin and Pinnuck, Matthew and Skinner, Douglas J., The Evolution of Audit Market Structure and the Emergence of the Big 4: Evidence from Australia (May 15, 2023). Chicago Booth Research Paper No. 14-13, Available at SSRN: https://ssrn.com/abstract=2431727 or http://dx.doi.org/10.2139/ssrn.2431727

Colin Ferguson

University of Melbourne - Faculty of Business and Economics (Deceased)

Matthew Pinnuck

University of Melbourne - Department of Accounting ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia

Douglas J. Skinner (Contact Author)

The University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

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