The Effect Of Audit Market Deregulation On Audit Competition And Quality

Marios Fasoulas () and Evangelos Chytis
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Evangelos Chytis: Department of Accounting and Finance, University of Ioannina, Greece

Journal of Accounting and Management Information Systems, 2025, vol. 24, issue 1, 5-25

Abstract: Purpose- This paper examines the effect of minimum audit fee reserve deregulation on audit quality. Specifically, we examine the impact of the 2011 audit fee deregulation in Greece. Design/methodology/approach- Our sample consists of 120 firms listed on the Athens Stock Exchange, from twelve industries. The period of observation is 10 years, with 1.200 firm-year observations. The examined period is divided into the five years prior to the deregulation (2007-2011) and those after it (2012-2016) to illustrate the impact of the audit deregulation. We use earnings quality as an audit quality proxy, set various independent variables as suggested by existing literature and conduct a difference in difference (DID) analysis and robustness tests. To estimate abnormal accruals we use the same model as Han and Wang (1998). Findings- Our results indicate a statistically significant negative relationship between audit quality and deregulation, which suggests that augmented competition of audit firms has a negative effect on audit quality. Originality/value- This study adds the case of Greece to the existing literature on the impact of audit deregulation on audit quality. The results corroborate the stream of research that finds a positive association between audit fee deregulation and audit quality decrease. To the authors’ best knowledge, this is the first similar study conducted in a European economy. In addition, our findings suggest that policy makers should carefully plan deregulations especially in jurisdictions with an emerging capital market distinguished by a low degree of supervisory effectiveness and poor investor protection mechanisms.

Keywords: Audit quality; deregulation; audit fees; earnings quality; audit firm competition (search for similar items in EconPapers)
JEL-codes: M42 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ami:journl:v:24:y:2024:i:1:p:5-25

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