On the benefits of audit market consolidation : Evidence from merged audit firms

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Author(s)

  • Qihui Gong
  • Oliver Zhen Li
  • Yupeng Lin
  • Liansheng Wu

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)463-488
Journal / PublicationAccounting Review
Volume91
Issue number2
Publication statusPublished - 1 Mar 2016

Abstract

We examine efficiency improvement associated with audit firm mergers. Our analysis is made possible by a unique dataset of audit hours in China. We find a significant reduction in audit hours, unaccompanied by a deterioration in audit quality, of merged audit firms. Further, we find a larger reduction in audit hours when acquirers are Chinese domestic Big 10 audit firms and when client firms are more complex. These results are consistent with the notion of economies of scale arising from horizontal mergers. However, enhanced efficiency does not necessarily reduce audit fees. Instead, we find an increase in audit fees when acquirers are international Big 4 audit firms even when we control for possible changes in market power. This premium is at least partially due to the certification effect of international Big 4 audit firms.

Research Area(s)

  • Audit fees, Audit hours, Audit mergers, Efficiency gains

Citation Format(s)

On the benefits of audit market consolidation: Evidence from merged audit firms. / Gong, Qihui; Li, Oliver Zhen; Lin, Yupeng et al.
In: Accounting Review, Vol. 91, No. 2, 01.03.2016, p. 463-488.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review