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An empirical test of spatial competition in the audit market

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  • Numan, Wieteke
  • Willekens, Marleen

Abstract

This study empirically examines the effects of competition through differentiation on audit pricing. Based on prior economic theory on differentiated-product markets (e.g., Hotelling, 1929; Tirole, 1988), we hypothesize that audit fees are affected by an auditor's relative location in a market segment. We define audit markets per industry segment and U.S. Metropolitan Statistical Area and specify an auditor's industry location relative to the client (auditor–client industry alignment) and relative to the closest competitor (industry market share distance to closest competitor). We find that audit fees increase in both auditor–client industry alignment and industry market share distance to the closest competitor.

Suggested Citation

  • Numan, Wieteke & Willekens, Marleen, 2012. "An empirical test of spatial competition in the audit market," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 450-465.
    • Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:450-465
    DOI: 10.1016/j.jacceco.2011.10.002
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    More about this item

    Keywords

    Audit markets; Price competition; Industry specialization; Differentiation;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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