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RAAS 2022/12
Vol.12 No.2:
1-38
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Audit Market Concentration and Audit Quality
Li-Chun Kuo1*, and Chan-Jane Lin2
1Department of Accountancy, National Taipei University
2Departemnt of Accounting, National Taiwan University
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Abstract:
Since the demise of Arthur Andersen, regulators in Western countries have been concerned with the negative effect of having fewer auditors in the market. Studies investigating the relationship between audit market concentration and audit quality have reported mixed findings. This study explores the characteristics of the audit market in Taiwan and examines the association between audit market concentration and audit quality at the audit firm and audit partner levels. By analyzing companies listed from 1987 to 2020, we reveal the negative associations between concentration at both levels and clients’ discretionary accruals. By dividing the observations into four periods, the empirical results indicate that the concentration level is positively correlated with audit quality when the business content or business volume is less. But the concentration level becomes negatively associated with audit quality when audit firm's business content increases, or when audit partner’s business content and business volume increase. The results of additional tests and sensitivity analyses are the same as the main tests. This study provides empirical evidence and implications for academic researchers, financial statement users, and regulators.
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Keywords: Audit market; Industry concentration; Audit quality; Audit partners
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Corresponding author
; e-mail: lckuo@mail.ntpu.edu.tw
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©
2022
Review of Accounting and Auditing Studies, ISSN 2221-9374
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