The International Audit Firms as New Entrants - an Empirical Analysis of Auditor Selection in Greece, 1993 to 1997

This paper investigates auditor choice in Greece in the five years subsequent to the 1992 liberalization of the audit market. We analyze auditor choices by 205 companies which, by 1997, represented almost 90% of the companies listed on the Athens Stock Exchange. We find that the level of shareholdings by foreign shareholders is positively associated with choice of a Big Six versus any other auditor both immediately after liberalization in 1993 and still in 1997, indicative of the role of the Big Six in providing audit credibility in the eyes of international investors. In addition, Big Six auditors strengthened their position in the finance sector and, outside the finance sector, among larger companies over the period studied. We also find that in both 1993 and 1997 Big Six firms were distinguished specifically from the second-tier international firms, consistent with the view that, in post-liberalization Greece, companies by their choice of auditor appear to be distinguishing Big Six firms from all others but not between second-tier international firms and local auditors. These findings shed light on the hitherto unresearched area of which companies Big Six auditors target in order to gain market share when they are new entrants in an environment radically changed by regulatory reform. In addition the research extends the auditor brand name reputation debate by its finding that, in post-liberalization Greece, second-tier international firms appear to be distinguished from the Big Six but not from the local audit firms.