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Audit Firm Concentration and Competition: Effects of Consolidation Since 1997
Susan E Cammack,
Cameron University
Maria T Caban - Garcia, University of South Florida
ABSTRACT. Events such as the merger of Price Waterhouse and Coopers & Lybrand, changes in laws and regulations, and the dissolution of Arthur Andersen have increased the concern about the lack of competition in the public accounting industry. A recent report issued by the federal government addresses this issue. We examine the level of competition, before and after the merger and before and after the dissolution of Arthur Andersen. We segment the audit market by exchange, by industry, and by geographic regions, including the fifty largest U.S. city markets. We examine the first-tier and second-tier audit firms separately. We find that concentration did indeed increase after the merger and after the dissolution, but decreased in the years between those events. However, the remaining Big Four firms continue to dominate the market for auditing public companies. Furthermore, while some segments of the audit market are highly concentrated, others are relatively competitive.
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