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Competition in China’s public accounting service market: evidence from newly-established branch offices

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  • Xi Wu
  • Chunfei Wang
  • Bo Li

Abstract

China’s public accounting service profession has experienced rapid development in the past decade, and the major means of expansion are mainly characterized by merging with local audit firms as newly established branch offices across the country. Based on the office-level data in China from 2013 to 2016, this study examines the competing strategies of these newly-established branch offices and their potential impact on the local audit market. We find that newly established branch offices are able to successfully obtain listed clients in the year of establishment via significant low-price competition and reducing audit quality. Furthermore, when competition in the inter-provincial audit market intensifies, it is more likely for existing firms to offer audit fee discounts to their incumbent clients. Our evidence indicates that the epitaxial extension brings about destructive competition, and existing audit firms use price reduction strategies as a defense, thus disrupting normal market competition.

Suggested Citation

  • Xi Wu & Chunfei Wang & Bo Li, 2018. "Competition in China’s public accounting service market: evidence from newly-established branch offices," China Journal of Accounting Studies, Taylor & Francis Journals, vol. 6(4), pages 421-447, October.
    • Handle: RePEc:taf:rcjaxx:v:6:y:2018:i:4:p:421-447
    DOI: 10.1080/21697213.2019.1612191
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    Cited by:

    1. Zhang, Yiling & Wei, Lang, 2023. "Does regional audit market competition influence audit pricing? Evidence based on the spatial distribution of the audit market," Finance Research Letters, Elsevier, vol. 58(PC).

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