 Is there a dark side of competition? Product market competition and auditor-client contractingLi, Tianpei (Constance) and Stephanie Walton Advances in accounting, 2023, vol. 62, issue C Abstract: This study establishes the informational value of a company's product market competition, derived from qualitative nonfinancial disclosures, in the audit contracting process. Greater product market competition could either serve as means of mitigating agency costs between managers and shareholders or heightening managerial rent-seeking activities and the incentive to distort disclosures. Consequently, greater competition could either increase or decrease audit engagement risk. We find that greater product market competition is associated with greater engagement risk. Auditors respond to the higher risk by assessing greater audit fees. Although auditors respond by charging higher fees and dedicating greater effort to these engagements, we nonetheless find that audit quality is negatively affected by greater competition. Our findings are consistent with the dark side hypothesis of product market competition. Overall, our study provides evidence that company-level competition effects convey valuable information to auditors. Keywords: Product market competition; Audit risk; Audit quality; Agency costs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:62:y:2023:i:c:s0882611023000172 DOI: 10.1016/j.adiac.2023.100658 Access Statistics for this article Advances in accounting is currently edited by Dennis Caplan More articles in Advances in accounting from Elsevier |
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