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The Effect of the Big Eight Accounting Firm Mergers on the Market for Audit Services

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  • Sullivan, Mary W

Abstract

The research assesses whether the two Big Eight mergers of 1989 were anticompetitive or efficiency enhancing. The study determines how a merger would affect the merged firm's probability of winning an auction to supply audit services under four different merger theories. A data set of 1,978 firms over a 12-year period is constructed to test these theories. The main conclusion of the analysis is that the Big Eight mergers of 1989 resulted in cost reductions that benefited relatively large audit buyers who switched auditors after the mergers. By combining the assets of the four constituent firms, the two merged firms were more successful in competing for large clients. This research adds to the small but growing literature on studies of actual mergers. Copyright 2002 by the University of Chicago.

Suggested Citation

  • Sullivan, Mary W, 2002. "The Effect of the Big Eight Accounting Firm Mergers on the Market for Audit Services," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 375-399, October.
    • Handle: RePEc:ucp:jlawec:v:45:y:2002:i:2:p:375-99
    DOI: 10.1086/340812
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    3. Michael Firth & Thomas Lau, 2004. "Audit pricing following mergers of accounting practices: evidence from Hong Kong," Accounting and Business Research, Taylor & Francis Journals, vol. 34(3), pages 201-213.
    4. Andrew von Nordenflycht, 2011. "Firm Size and Industry Structure Under Human Capital Intensity: Insights from the Evolution of the Global Advertising Industry," Organization Science, INFORMS, vol. 22(1), pages 141-157, February.
    5. Lai, Kam-Wah, 2019. "Audit report lag, audit fees, and audit quality following an audit firm merger: Evidence from Hong Kong," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 36(C), pages 1-1.
    6. Radu-Daniel LOGHIN, 2017. "The Impact Of Auditor Affiliation On Financial Statement Relevance," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 15, pages 419-425, December.
    7. Cahan, Steven & Hay, David & Li, Lina Z., 2021. "Audit firm merger and the strategic response by large audit firms," The British Accounting Review, Elsevier, vol. 53(3).
    8. Benedikt Koehler, 2006. "Audit Market Failure," Economic Affairs, Wiley Blackwell, vol. 26(3), pages 67-69, September.
    9. Charles J. Thomas, 2021. "Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 730-741, September.
    10. Kitto, Andrew R., 2024. "The effects of non-Big 4 mergers on audit efficiency and audit market competition☆," Journal of Accounting and Economics, Elsevier, vol. 77(1).
    11. Martin G. H. Wu, 2006. "An Economic Analysis of Audit and Nonaudit Services: The Trade†off between Competition Crossovers and Knowledge Spillovers," Contemporary Accounting Research, John Wiley & Sons, vol. 23(2), pages 527-554, June.
    12. Emilie Feldman, 2006. "A Basic Quantification of the Competitive Implications of the Demise of Arthur Andersen," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(3), pages 193-212, November.
    13. de Fuentes, Cristina & García Benau, María Antonia & Pucheta Martínez, María Consuelo & Ruiz Barbadillo, Emiliano, 2015. "El éxito de los procesos de fusión en el mercado de auditoría: el caso de PriceWaterhouseCoopers," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 18(1), pages 55-67.
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