The Audit Quality Effects of Small Audit Firm Mergers in the United States

Forthcoming. AUDITING: A Journal of Practice & Theory

53 Pages Posted: 26 Jul 2015 Last revised: 18 Jul 2022

See all articles by Brant E. Christensen

Brant E. Christensen

Brigham Young University

Kecia Smith

North Carolina A&T State University

Dechun Wang

Texas A&M University

Devin Williams

University of Oklahoma

Date Written: July 15, 2022

Abstract

Increased audit regulation, coupled with reports of frequent mergers among smaller audit firms, creates a dynamic environment in which to assess changes in the U.S. audit market. We examine the audit quality consequences of audit firm mergers between small audit firms that audit public clients, a topic about which little is known. Using a sample of small audit firms each involved in a single merger during 2004-2016, we find consistent evidence that post-merger audit quality decreases when PCAOB-identified audit deficiencies and audit fees are used as proxies for audit quality. In addition, we find weak evidence of lower post-merger audit quality when examining discretionary accruals, and no conclusive post-merger audit quality effect for the probability of misstatements. Overall, our findings provide evidence regarding the audit quality consequences of some small audit firm mergers in the United States.

Keywords: Mergers, public company audit market, audit quality, audit regulation

JEL Classification: M42

Suggested Citation

Christensen, Brant E. and Smith, Kecia and Wang, Dechun and Williams, Devin, The Audit Quality Effects of Small Audit Firm Mergers in the United States (July 15, 2022). Forthcoming. AUDITING: A Journal of Practice & Theory, Available at SSRN: https://ssrn.com/abstract=2635605 or http://dx.doi.org/10.2139/ssrn.2635605

Brant E. Christensen

Brigham Young University ( email )

United States

Kecia Smith (Contact Author)

North Carolina A&T State University ( email )

1601 E. Market St.
Greensboro, NC 27411
United States
336-285-3389 (Phone)

HOME PAGE: http://www.ncat.edu/employee-bio.php?directoryID=1921383412

Dechun Wang

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

Devin Williams

University of Oklahoma ( email )

Norman, OK 73019-4004
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
720
Abstract Views
4,536
Rank
65,798
PlumX Metrics