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An examination of the relation between market structure and the profitability of audit engagements

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  • Will Ciconte
  • Walter Robert Knechel
  • Caren Schelleman
  • Gary Monroe

Abstract

type="main" xml:id="acfi12078-abs-0001"> Due to increasing supplier concentration, there is growing concern regarding the lack of competition in the audit market. Theory based on Cournot oligopoly predicts that increasing concentration will facilitate monopolistic behaviour. Conversely, if the market for audit services has more in common with a Bertrand oligopoly, concentration may not lead to higher fees. We evaluate whether increased audit supplier concentration leads to economic rents by investigating audit profitability. Using proprietary data from a (then) Big 6 audit firm, we find that local market structure has a significant and positive association with audit profitability, but not auditor effort for large clients.

Suggested Citation

  • Will Ciconte & Walter Robert Knechel & Caren Schelleman & Gary Monroe, 2015. "An examination of the relation between market structure and the profitability of audit engagements," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(3), pages 749-781, September.
    • Handle: RePEc:bla:acctfi:v:55:y:2015:i:3:p:749-781
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    File URL: http://hdl.handle.net/10.1111/acfi.2015.55.issue-3
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    Cited by:

    1. Martina K. Linnenluecke & Jacqueline Birt & Xiaoyan Chen & Xin Ling & Tom Smith, 2017. "Accounting Research in Abacus, A&F, AAR, and AJM from 2008–2015: A Review and Research Agenda," Abacus, Accounting Foundation, University of Sydney, vol. 53(2), pages 159-179, June.
    2. repec:prg:jnlcfu:v:2021:y:2021:i:4:id:565 is not listed on IDEAS
    3. Michal Šindelář & Libuše Müllerová, 2021. "Audit quality in the Czech Republic with a focus on auditors of public interest entities [Kvalita auditu v České republice se zaměřením na auditory subjektů veřejného zájmu]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2021(4), pages 5-17.
    4. Simon Dekeyser & Ann Gaeremynck & W. Robert Knechel & Marleen Willekens, 2021. "Multimarket Contact and Mutual Forbearance in Audit Markets," Journal of Accounting Research, Wiley Blackwell, vol. 59(5), pages 1651-1688, December.

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