Do Big 4 Audit Firms Around the World Approach Monopoly Pricing when Audit Market Concentration is High?

• In Event: International Evidence

Abstract

We examine whether the concentration with the group of Big 4 audit firms within countries around the world is associated with audit fees. Regulators have been concerned with the effects of Big 4 dominance and concentration on both audit quality and audit fees. We provide evidence that when concentration within the Big 4 group of firms within a country is higher, they are able to charge outsized rents that possibly approach monopoly pricing. Further, we find this effect only for auditors that possess expertise (both industry-related and IFRS-related). Finally, we find this effect only in markets where the overall level of competition is lower, suggesting that other competitive pressures are able to mitigate the effects of Big 4 concentration on audit pricing. This also indicates that in less-competitive environments overall, the audit pricing effects of Big 4 concentration are especially harmful for audit pricing.

Authors

• Brett Shinji Kawada, San Diego State University

• Paul N Michas, University of Arizona-Tucson