Switching Costs and Market Power in Auditing: Evidence from a Structural Approach

Qiang Guo, Christopher Koch, Aiyong Zhu
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Abstract

ABSTRACT This study provides novel evidence on the magnitude of switching costs in auditing. Using a discrete choice approach, we infer switching costs from clients’ audit firm choices. The demand estimation reveals that switching costs are significant and vary by direction, with the highest costs associated with switching from non-Big 4 to Big 4 audit firms. Counterfactual analyses of forced switches suggest that switching costs are substantial, ranging from 0.7 billion U.S. dollars (14.2 percent of audit fees) to 1.2 billion U.S. dollars (24.0 percent of audit fees) when aggregated across all clients. Counterfactual analyses of voluntary switching show that the audit market would become highly dynamic and more concentrated if switching costs were removed. Additionally, clients would gain consumer surplus of up to 306 million U.S. dollars (5.4 percent of audit fees) in such a scenario. Overall, our study documents the importance of switching costs for understanding audit market dynamics. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M42; M48; L11; L84.
审计中的转换成本和市场力量:来自结构方法的证据
摘要 本研究提供了有关审计转换成本大小的新证据。我们采用离散选择法,从客户对审计公司的选择中推断出转换成本。需求估算显示,转换成本很高,且因方向而异,从非四大转向四大审计公司的转换成本最高。对强制转换的反事实分析表明,转换成本很高,从 7 亿美元(占审计费用的 14.2%)到 12 亿美元(占审计费用的 24.0%)不等。对自愿转换的反事实分析表明,如果取消转换成本,审计市场将变得高度活跃和更加集中。此外,在这种情况下,客户将获得高达 3.06 亿美元的消费者剩余(占审计费用的 5.4%)。总之,我们的研究证明了转换成本对于理解审计市场动态的重要性。数据可用性:数据可从文中引用的公共来源获取。JEL 分类:M42;M48;L11;L84。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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