NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Joseph J. Gerakos

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July 2013Competition in the Audit Market: Policy Implications
with Chad Syverson: w19251
The audit market's unique combination of features–its role in capital market transparency, mandated demand, and concentrated supply–means it receives considerable attention from policymakers. We explore the effects of two market scenarios that have been the focus of policy discussions: a) further supply concentration due to one of the "Big 4" auditors exiting and b) mandatory audit firm rotation. To do so, we first estimate publicly traded firms' demand for auditing services, treating services provided by each of the Big 4 as differentiated products. We then use those estimates to calculate how each scenario would affect client firms' consumer surplus. We estimate that, conservatively, exit by one of the Big 4 would reduce client firms' surplus by $1.2-1.8 billion per year. These estimates...

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