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Why did the Big Four get so large? Evidence from Australia

Author

Listed:
  • Colin Ferguson

    (University of Melbourne)

  • Matthew Pinnuck

    (University of Melbourne)

  • Douglas J. Skinner

    (University of Chicago)

Abstract

We use a long time-series from Australia to shed light on economic factors that led to audit market concentration and the Big N. We show that increases in the size of a small number of public companies was an important factor that led to large audit firms and market concentration. We also show that emerging Big N firms made sunk cost investments, including in the ability to provide industry expertise and non-audit services, which allowed them to retain clients, differentiate, and grow. These changes occurred around the time the profession lifted restrictions on advertising, which helped facilitate differentiation, and that larger, more complex clients switched to emerging Big N firms while smaller clients switched to non-Big N firms. We do not find that increases in audit market concentration reduced competition; our results instead suggest the audit market became more competitive over time.

Suggested Citation

  • Colin Ferguson & Matthew Pinnuck & Douglas J. Skinner, 2025. "Why did the Big Four get so large? Evidence from Australia," Review of Accounting Studies, Springer, vol. 30(3), pages 2508-2554, September.
    • Handle: RePEc:spr:reaccs:v:30:y:2025:i:3:d:10.1007_s11142-025-09871-x
    DOI: 10.1007/s11142-025-09871-x
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    Keywords

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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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