An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Mark Kohlbeck
Florida Atlantic University

Brian W Mayhew
University of Wisconsin Madison

Pamela R Murphy
University of Wisconsin Madison

Michael Wilkins
Texas A&M University

Abstract: We examine competition for Andersen’s clients during and after its failure by constructing a database of Andersen offices purchased by the Big4. With this database, we examine the impact of different competitive strategies employed by the Big4 firms and the association between those strategies and changes in former Andersen clients’ audit fees.

We find that the two Big4 firms that concentrate on buying former Andersen offices prefer large, low-risk offices. Clients in purchased offices are more likely to stay with the purchasing firm. Former Andersen client audit fees also reflect the differences in acquisition method and local-level competition. Clients that remain with the purchasing auditor pay a fee premium while clients that change auditors in a local market without an office purchase receive low-ball fees. Additionally, we document fee-based evidence of less competition for large clients, consistent with concerns about further market consolidation.

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