Regulatory Spillovers in Common Audit Markets
Raphael Duguay (),
Michael Minnis () and
Andrew Sutherland
Additional contact information
Raphael Duguay: Booth School of Business, University of Chicago, Chicago, Illinois 60637
Michael Minnis: Booth School of Business, University of Chicago, Chicago, Illinois 60637
Management Science, 2020, vol. 66, issue 8, 3389-3411
Abstract:
We find that Sarbanes–Oxley (SOX) had two significant effects on the audit market for nonpublic entities. The first short-run effect stems from inelastic labor supply coupled with an audit demand shock from public companies. As a result, private companies reduced their use of attested financial reports in bank financing by 12%, and audit fee increases for nonprofit organizations (NPOs) more than doubled. The second long-run effect was a transformation in the audit supply structure. After SOX, NPOs were less likely to match with auditors most exposed to public companies, whereas auditors increasingly specialized their offices based on client type. Audit market concentration for NPOs dropped by more than one-half within five years of SOX and remained at this level through the end of our sample in 2013, whereas the number of suppliers increased by 26%. Our results demonstrate how regulation directed at public companies generates economically important spillovers for nonpublic entities.We find that Sarbanes–Oxley (SOX) had two significant effects on the audit market for nonpublic entities. The first short-run effect stems from inelastic labor supply coupled with an audit demand shock from public companies. As a result, private companies reduced their use of attested financial reports in bank financing by 12%, and audit fee increases for nonprofit organizations (NPOs) more than doubled. The second long-run effect was a transformation in the audit supply structure. After SOX, NPOs were less likely to match with auditors most exposed to public companies, whereas auditors increasingly specialized their offices based on client type. Audit market concentration for NPOs dropped by more than one-half within five years of SOX and remained at this level through the end of our sample in 2013, whereas the number of suppliers increased by 26%. Our results demonstrate how regulation directed at public companies generates economically important spillovers for nonpublic entities.
Keywords: Sarbanes–Oxley; securities regulation; auditing; market structure; accounting; private firms; nonprofits; labor economics (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)
Downloads: (external link)
https://doi.org/10.1287/mnsc.2019.3352 (application/pdf)
Related works:
Working Paper: Regulatory Spillovers in Common Audit Markets (2019) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:66:y:2020:i:8:p:3389-3411
Access Statistics for this article
More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().