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
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: Suggested Citation