Author
Listed:
- Jong†Hag Choi
- Seil Kim
- K. K. Raman
Abstract
We examine the effects of the 1998 merger of Price Waterhouse (PW) and Coopers & Lybrand (CL) on the audit quality of the merged firm PricewaterhouseCoopers (PwC) at both the firm and office levels, where audit quality is surrogated by the auditor's propensity to issue a going†concern opinion, clients’ likelihood of meeting or beating analysts’ earnings forecasts, and clients’ accrual quality. At the firm level, we find that the merger increased audit quality for PwC relative to the audit quality of the other Big N firms. At the office level, our findings, albeit mixed, collectively suggest that the improvement in firm†level audit quality was likely driven by the improvement in audit quality at PwC's overlapping offices, that is, offices in cities where both PW and CL had separate offices prior to the merger. Further, our findings suggest that although the PW/CL merger increased auditor concentration in local audit markets with PwC overlapping offices, the merger improved (rather than hurt) audit quality in those markets. Overall, our study contributes to the extant sparse literature on the effect of Big N mergers on audit quality, and is of potential interest to regulators.Les auteurs se penchent sur les répercussions de la fusion des cabinets Price Waterhouse (PW) et Coopers & Lybrand (CL), en 1998, sur la qualité du travail d'audit du cabinet PricewaterhouseCoopers (PwC) issu de cette fusion, tant à l’échelon du cabinet qu’à celui des bureaux, à l'aide de trois variables de substitution à la qualité de l'audit : la propension à exprimer une réserve quant à la continuité de l'exploitation, la probabilité que les entreprises clientes atteignent ou dépassent les prévisions de résultats des analystes et la qualité des régularisations des entreprises clientes. À l’échelon du cabinet, les auteurs constatent que la fusion a accru la qualité de l'audit chez PwC par rapport à la qualité de l'audit chez les autres Grands cabinets. À l’échelon des bureaux, leurs observations, bien qu'elles soient mitigées, semblent indiquer dans l'ensemble que l'amélioration de la qualité de l'audit à l’échelon du cabinet est vraisemblablement induite par l'amélioration de la qualité de l'audit dans les bureaux de PwC qui font double emploi, c'est†à †dire les bureaux établis dans des villes où PW et CL possédaient de part et d'autre des bureaux avant la fusion. En outre, les constatations des auteurs donnent à penser que, même si la fusion des cabinets PW et CL a augmenté la concentration des auditeurs sur les marchés d'audit locaux comptant des bureaux de PwC qui faisaient double emploi, elle a amélioré (plutôt que détérioré) la qualité de l'audit sur ces marchés. Globalement, ces résultats viennent enrichir les rares études portant sur l'incidence des fusions de Grands cabinets sur la qualité de l'audit et est donc susceptible d'intéresser les autorités de réglementation.
Suggested Citation
Jong†Hag Choi & Seil Kim & K. K. Raman, 2017.
"Did the 1998 Merger of Price Waterhouse and Coopers & Lybrand Increase Audit Quality?,"
Contemporary Accounting Research, John Wiley & Sons, vol. 34(2), pages 1071-1102, June.
Handle:
RePEc:wly:coacre:v:34:y:2017:i:2:p:1071-1102
DOI: 10.1111/1911-3846.12290
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Cited by:
- Hallman, Nicholas J. & Kartapanis, Antonis & Schmidt, Jaime J., 2022.
"How do auditors respond to competition? Evidence from the bidding process,"
Journal of Accounting and Economics, Elsevier, vol. 73(2).
- 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.
- 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).
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