Auditor Size, Audit Market Concentration, and Audit Quality: Chinese Evidence

Abstract

Liu, Cheng-Ping

This study examines whether auditor market concentration affects the positive association between auditor size and audit quality, as measured by the propensity to issue modified audit opinions and the magnitude of discretionary accruals. Individual auditors with deep clienteles possess superior experience and expertise, and they are less likely to economic dependence on a particular client. We posit that in a high competition (low concentration) market, large auditors are more likely to supply higher audit quality. Using data from Shanghai and Shenzhen Stock Exchanges for the period 2008-2020, we find evidence that the larger size of individual auditors is prone to issue modified audit reports, and clients exhibit less aggressive earnings management behavior as auditors operate in the highly competitive environment.

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