Does Audit Market Concentration Affect Audit Fees and Audit Quality?

What is it about?

This research examines whether audit market concentration affects audit fees and audit quality in China, where competition among auditors is intense due to the large number of audit firms. We find that audit fees are higher when audit market concentration is higher. Path analysis shows that such increased audit fees due to audit market concentration further improve audit quality.

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Photo by Nicolas Hoizey on Unsplash

Photo by Nicolas Hoizey on Unsplash

Why is it important?

Globally, there is a concern on whether a shortage of choices affects audit pricing and audit quality. We provide evidence from China where the dominance of Big 4 auditors is lower. Importantly, we use path analysis and show that audit market concentration has direct and indirect effects on audit quality. By separating the direct and the indirect effect of concentration on audit quality, our research would explain why previous studies that do not have a separation document mixed evidence.

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