Regulatory Spillovers in Common Audit Markets
Name
SSRN-id3020316.pdf
Description
Accepted version
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769.35 KB
Format
Adobe PDF
Checksum (MD5)
7f4709293d863735148356719380e2c0
Author(s)
Sutherland, Andrew Gordon
Date Issued
November 2019
Journal
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
Duguay, Raphael et al. “Regulatory Spillovers in Common Audit Markets.” Management Science, 66, 8 (November 2019) © 2019 The Author(s)
Version
Author's final manuscript
Abstract
We find that Sarbanes-Oxley (SOX) had two significant effects on the audit market for nonpublic entities. The first short-run effect stems from inelastic labor supply coupled with an audit demand shock from public companies. As a result, private companies reduced their use of attested financial reports in bank financing by 12%, and audit fee increases for nonprofit organizations (NPOs) more than doubled. The second long-run effect was a transformation in the audit supply structure. After SOX, NPOs were less likely to match with auditors most exposed to public companies, whereas auditors increasingly specialized their offices based on client type. Audit market concentration for NPOs dropped by more than one-half within five years of SOX and remained at this level through the end of our sample in 2013, whereas the number of suppliers increased by 26%. Our results demonstrate how regulation directed at public companies generates economically important spillovers for nonpublic entities.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1287/MNSC.2019.3352
