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Auditor merger, audit quality and audit fee: evidence from the PricewaterhouseCoopers merger in the UK

Auditor merger, audit quality and audit fee: evidence from the PricewaterhouseCoopers merger in the UK
Auditor merger, audit quality and audit fee: evidence from the PricewaterhouseCoopers merger in the UK
Focusing on the merger of Price Waterhouse and Coopers & Lybrand in 1998, we document increased audit quality (measured by earnings quality of the clients) for the merged firm and other big-X auditors (The big-X auditors are Ernst & Young, Deloitte, KPMG and Arthur Anderson.) during the post-merger period because: (1) controlling for economic conditions, clients of big-X auditors have lower levels of absolute discretionary accruals and (2) the value relevance of earnings has significantly increased. Furthermore, we find evidence that in the post-merger period, there is a significant increase in audit fees for PricewaterhouseCoopers and other big-X client firms, which suggests that the effect of collectively enhanced market power of big-X auditors (which tends to increase audit fees) dominates the effect of cost savings from the merger (which tends to lower audit fees). The results have implications for regulators and policy makers.
0278-4254
69-85
Ding, Rong
ca23647f-00f4-42d4-a308-6570c8e370b5
Jia, Yuping
d98cbd05-0028-4428-b515-8ce6e329e27e
Ding, Rong
ca23647f-00f4-42d4-a308-6570c8e370b5
Jia, Yuping
d98cbd05-0028-4428-b515-8ce6e329e27e

Ding, Rong and Jia, Yuping (2012) Auditor merger, audit quality and audit fee: evidence from the PricewaterhouseCoopers merger in the UK. Journal of Accounting and Public Policy, 31 (1), 69-85. (doi:10.1016/j.jaccpubpol.2011.08.002).

Record type: Article

Abstract

Focusing on the merger of Price Waterhouse and Coopers & Lybrand in 1998, we document increased audit quality (measured by earnings quality of the clients) for the merged firm and other big-X auditors (The big-X auditors are Ernst & Young, Deloitte, KPMG and Arthur Anderson.) during the post-merger period because: (1) controlling for economic conditions, clients of big-X auditors have lower levels of absolute discretionary accruals and (2) the value relevance of earnings has significantly increased. Furthermore, we find evidence that in the post-merger period, there is a significant increase in audit fees for PricewaterhouseCoopers and other big-X client firms, which suggests that the effect of collectively enhanced market power of big-X auditors (which tends to increase audit fees) dominates the effect of cost savings from the merger (which tends to lower audit fees). The results have implications for regulators and policy makers.

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Published date: January 2012
Organisations: Southampton Business School

Identifiers

Local EPrints ID: 358519
URI: http://eprints.soton.ac.uk/id/eprint/358519
ISSN: 0278-4254
PURE UUID: 9e6c10e4-fcda-428c-98eb-5219ccb86556

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Date deposited: 11 Oct 2013 12:43
Last modified: 16 Jul 2019 21:20

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