Economic Effects of Accounting Regulation for Public Accountants: Evidence from the Netherlands

Abstract

Abstract This paper provides empirical evidence on the size of the audit market and the number of public accountants supplying services in an attempt to understand the effects of accounting regulation for public accountants. Intuitively, the size of the market for public accounting services would be expected to increase because of accounting regulation and have beneficial effects for public accountants. However, the actual effects of accounting regulation depend on the level of voluntary disclosure before the regulation, the degree of compliance with the regulation by firms and the number of public accountants supplying services. The size effects of two changes in Dutch accounting regulation, one in 1970 and one in 1983, are analysed empirically. The indicators of the size of the market for public accounting services used suggest an increase in the size of the audit market. The results for the supply side suggest that the total number of employed public accountants adjusted to this increase. However, the total number of partners did not adjust to the increased size of the market. Two alternative explanations for the different findings for employed public accountants and partners are provided and discussed.