Journal of Accounting and Economics Vol. 65 No. 1 2018
Transaction costs and competition among audit firms in local markets
open access
Abstract
We develop a measure to capture an audit firm's competitive position in a local audit market based on the transaction costs of changing audit firms included in DeAngelo's (1981) multi-period audit pricing model. Our competition measure reflects the size difference between the largest audit firm in a market specified by client industry at the city level and the other audit firms operating in that market. We find that audit fees of a client decrease as this size difference increases. This result suggests that smaller audit firms charge lower audit fees because of their competitive disadvantage to the local largest firm.
- DOI
- 10.1016/j.jacceco.2017.11.004
- Volume
- 65
- Issue
- 1
- Pages
- 129-147
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref