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Great Migration: How Recent Events Changed the Switching Behavior of Top-Tier Audit Clients
Mary W. Sullivan,
The George Washington University
ABSTRACT. This study investigates two possible causes of the recent increase in switching of Big 4 audit clients to non-Big 4 auditors: (1) that the industry consolidation following Andersen’s failure resulted in anticompetitive price increases and (2) that Section 404 of the Sarbanes-Oxley Act, by increasing demand for Big 4 audit services, increased the relative costs of the Big 4 auditors. The study develops testable implications for how switching behavior would be affected by each of these possible causes. The evidence is inconsistent with anticompetitive behavior and is consistent with a relative Big 4 cost increase. The results suggest that the recent restructuring of the audit market is attributable to the burden of complying with Section 404.
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