Industry and City-Level Audit Market Concentration

Abstract

We extend prior research examining the competitiveness of the US audit market by measuring concentration levels within client industry and within client location before and after the merger between Price Waterhouse and Coopers & Lybrand and before and after the dissolution of Arthur Andersen. We also conduct multivariate analysis to identify factors that affected concentration at the industry and at the city level. We find that most concentration levels within client industries and within city markets increased after the merger and after the dissolution, with a slight decrease in the years between the two events. The multivariate results at the industry and city level highlight that the changes in concentration are associated with factors such as industry size, concentration in the client industry, city population, and the ratio of active audit firms to the number of company headquarters.