Auditor Concentration of Listed Public Companies on International Stock Exchanges

Abstract

This paper explores the concentration of audit services provided to listed public companies on the Stock Exchanges of Canada, Hong Kong, London, and Singapore. The Canadian and London stock exchanges are chosen as representatives of the North American and European markets, while the Hong Kong and Singapore exchanges represent the newly developed Asia Pacific markets. Public accounting firms have benefited from the globalisation trends by expanding their own markets. The reason frequently mentioned for the mergers of the Big 8 accounting firms to form the Big 6 is that they want to increase their international presence and be in a better position to service multinationals in different markets. However, previous studies of concentration of firms in providing auditing services have all been restricted to the USA or individual countries. This study uses both concentration ratios and Herfindahl indices to examine concentration of audit firms in the international stock exchanges. The results indicate a disparate competition amongst the larger firms in each of the Canadian, Hong Kong, London, and Singapore markets. In all of the four markets, the concentration ratios and Herfindahl indices calculated indicate a lack of competition even at the four firm level. This imbalance was very pronounced when the size of the companies audited is considered using their reported total assets. We also present the market shares of the leading six firms in each exchange and discuss some implications of this disparate competition.