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Competition and Certification: Theory and Evidence from the Audit Market

Author

Listed:
  • Heng (Griffin) Geng
  • Cheng Zhang
  • Frank S Zhou

Abstract

We study how financial certifier competition influences loan contracting in the context of financial auditing. Exploiting the unexpected demise of Arthur Andersen that exogenously decreased auditor competition, we find a greater decrease in loan spread for borrowers in markets in which certifier competition declined more. Additional analyses suggest the result stems from enhanced audit quality and reduced credit risk. The effect of certifier competition is stronger for borrowers with weaker external monitoring and those generating significant revenue for their auditors. Our evidence highlights negative consequences of financial certifier competition. (JEL D43, G21, M42, M49)

Suggested Citation

  • Heng (Griffin) Geng & Cheng Zhang & Frank S Zhou, 2026. "Competition and Certification: Theory and Evidence from the Audit Market," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 15(1), pages 269-303.
    • Handle: RePEc:oup:rcorpf:v:15:y:2026:i:1:p:269-303.
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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