Transaction costs and competition among audit firms in local markets

Ling Chu, Dan A. Simunic, Minlei Ye and Ping Zhang

Journal of Accounting and Economics, 2018, vol. 65, issue 1, 129-147

Abstract: We develop a measure to capture an audit firm's competitive position in a local audit market based on the transaction costs of changing audit firms included in DeAngelo's (1981) multi-period audit pricing model. Our competition measure reflects the size difference between the largest audit firm in a market specified by client industry at the city level and the other audit firms operating in that market. We find that audit fees of a client decrease as this size difference increases. This result suggests that smaller audit firms charge lower audit fees because of their competitive disadvantage to the local largest firm.

Keywords: Audit pricing; Competition; Transaction costs (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:65:y:2018:i:1:p:129-147

DOI: 10.1016/j.jacceco.2017.11.004

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