Audit Market Dynamics: Effects on Audit Quality

Abstract

This study researches the effects of market share dynamics on audit quality in the U.S. audit market from fiscal years 2005 to 2013. Thus far, the audit market has only been researched in terms of static market share mobility. This research reflects competition more accurately by using market structure dynamics to map the U.S. audit market. The study finds that there is in fact a rather high degree of market share instability within the audit market, which indicates a high degree of competition. Moreover, two out of three models show a significant influence of market share instability on proxies for audit quality. The directions of these effects indicate that market share instability has a positive effect on audit quality. The paper therefore concludes that audit market share dynamics have a positive effect on audit quality.