An examination of the relation between market structure and the profitability of audit engagements

Will Ciconte, Walter Robert Knechel, Caren Schelleman

Research output: Contribution to journalArticle

Abstract

Due to increasing supplier concentration, there is growing concern regarding the lack of competition in the audit market. Theory based on Cournot oligopoly predicts that increasing concentration will facilitate monopolistic behaviour. Conversely, if the market for audit services has more in common with a Bertrand oligopoly, concentration may not lead to higher fees. We evaluate whether increased audit supplier concentration leads to economic rents by investigating audit profitability. Using proprietary data from a (then) Big 6 audit firm, we find that local market structure has a significant and positive association with audit profitability, but not auditor effort for large clients.

Original languageEnglish (US)
Pages (from-to)749-781
Number of pages33
JournalAccounting and Finance
Volume55
Issue number3
DOIs
StatePublished - Sep 1 2015

Keywords

  • Audit effort
  • Audit engagement profitability
  • Audit fees
  • Audit markets
  • Audit services

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)

Fingerprint Dive into the research topics of 'An examination of the relation between market structure and the profitability of audit engagements'. Together they form a unique fingerprint.

  • Cite this