Returns to scale pattern and efficient firm size in the public accounting industry: an empirical investigation

H Chang, C Galantine and A Thevaranjan
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H Chang: Drexel University
C Galantine: Pepperdine University
A Thevaranjan: Syracuse University

Journal of the Operational Research Society, 2009, vol. 60, issue 11, 1495-1501

Abstract: Abstract This paper employs Data Envelopment Analysis to investigate returns to scale patterns and efficient firm size in the public accounting industry in the USA post-Sarbanes–Oxley Act. Using contemporary survey data from Accounting Today's top-100 accounting firms for the years 2003 and 2004, our results indicate that the very largest accounting (first tier) firms display constant returns to scale, whereas approximately half of the smaller (second tier) firms exhibit increasing returns to scale. These findings suggest that while very large firms are optimally scaled, there still are economic efficiencies to be gained through expanding the size of nearly half of the second-tier accounting firms. Results for the remaining second-tier firms show either constant or decreasing returns to scale, indicating that they are either already optimally sized or that they should consider contraction. The results for the second-tier firms remain qualitatively unchanged when the first-tier firms are excluded from the estimation.

Keywords: accounting; data envelopment analysis; returns to scale; efficient firm size; Sarbanes–Oxley (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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DOI: 10.1057/jors.2009.60

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