Inducing Homogeneity in the Audit Services Market: A Cross-Industry Analysis

Abstract

In an earlier study on the audit services market, I showed that an individual client firm's likelihood of imitation in auditor selection systematically varied along with its relative position among competing peers within the industry. This paper extends that finding to the aggregate industry level by shifting the analytical focus from within-industry to between-industry variation. The data on 2254 auditor–client pairs across 45 manufacturing industries in the United States are examined to specify the social structural conditions under which the firms are more, or less, likely to produce the outcome of isomorphism. In general, the more hierarchically stratified an industry, the more likely it is to have a highly homogeneous practice among the firms within it. Inequality leads to and exacts behavioral homogeneity. There is, however, a threshold in the relationship between the aggregate homogeneity and the industry structure: When the disparity between the top and middle tiers is too large, the social reference process breaks down and the level of homogeneity declines. This industry-level finding complements the earlier firm-level finding and empirically substantiates the mechanism of mimetic isomorphism, further elaborating the theory.