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Market for Former Andersen Clients: Evidence from Government and Non-Profit Sectors
Thomas E. Vermeer,
University of Baltimore
ABSTRACT: The impact of the failure of Andersen on the market for audit services in the government and non-profit sectors has received limited attention from researchers. Given the growing role of these sectors in the U.S. economy, I examine the market for former Andersen clients in the government and non-profit sectors. Specifically, I determine whether the resource dependency framework and switching costs can help explain a non-profit’s propensity to follow its Andersen audit team to a new firm. I also provide descriptive data regarding the type of firm hired subsequent to Andersen and the impact of this switch on audit fees. I find that the presence of switching costs, the financial condition of a non-profit, and the size of the market are associated with the propensity of a non-profit to follow its Andersen audit team to a new firm.
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