Auditor concentration and competition among the large public accounting firms: Post-merger status and future implications

Abstract

The staff of a United States Senate Sub-Committee concluded in The Accounting Establishment (U. S. Congress, Senate, Subcommittee on Reports, Accounting and Management. 1976. The Accounting Establishment. S. Study, 94th Congress, 2nd session, pp. 43–46) that there was a high concentration of power in the Big Eight firms in the auditing of major companies and that those firms concentrated their efforts on certain major industries. At the same time, there was a vigorous defense of the Big Eight and its accounting practices. The argument presented was that the audit market was a very competitive industry. Various studies supported this argument, and it was widely accepted that competition was greater in the 1980s than at anytime in the recent past. However, with the recent mergers of several Big Eight firms, the questions and concerns about their dominance have once again become relevant. Our study examines the potential independent auditor concentration and competitiveness that may occur as a result of the recent mergers within the Big Eight firms. The study is limited to an examination of the independent auditors of large companies, defined as companies listed on the New York Stock Exchange, American Stock Exchange, or traded in the national Over the Counter Market. Both aggregate and individual market shares are examined for each exchange. Mergers do not necessarily result in less competition and higher prices. This may be the case with the Big Eight mergers. By merging, the smaller Big Eight firms became more competitive with the larger firms. Although there will be fewer major competitors in the future, the remaining firms should be more comparable in size, market shares, and resources available. Therefore, these mergers may produce more competition among the major accounting firms rather than less.