题 目：Audit Market Competition and Audit Quality:Evidence from the Entry of Big 4 into City-Level Audit Markets in the U.S.
嘉 宾：Xuanjun DONG, Ph.D. candidate, Hong Kong University of Science and Technology
地 点：上海交通大学 徐汇校区包图A303
Given that Big 4 audit firms continue to expand their presence into new geographical areas in the U.S., our study examines how the entry of a Big 4 audit firm affects the audit quality of existing audit firms. The results suggest that the entry of a Big 4 firm causes incumbent audit offices in the city to enhance their audit quality, as their clients report lower discretionary accruals and fewer incidences of accounting restatement, are more likely to receive going-concern opinions, and have an increased earnings response coefficient. Furthermore, we find that the enhanced audit quality is mainly attributable to existing audit offices owned by other Big 4 firms rather than those owned by non-Big 4 firms. Moreover, the change in audit quality is more pronounced for existing audit offices with clients that can easily switch to a new auditor and when the incoming Big 4 firm has prior experience in the city’s most important industries. In addition, the effects on the incumbent auditors’ quality are more significant when the incoming Big 4 firm shares a larger overlapping area with the incumbent auditors. Finally, after the entry of a new Big 4 firm, audit fees paid to incumbent Big 4 audit offices increase, whereas those paid to non-Big 4 firms decrease. Overall, our findings suggest that the entry of a new rival compels incumbent large audit firms to improve their audit quality. In contrast, possibly due to limited resources, existing small audit firms respond to the increased competition by reducing prices.
Xuanjun DONG is a PhD student at the Hong Kong University of Science and Technology. Prior to joining the PhD program, she earned a master’s degree in Accounting from Nanjing University. Her research interests are auditing, corporate governance, and capital market. Specifically, she is interested in applying industrial organization theory to accounting literature.