Pre and post Big 8 mergers: Comparison of auditor concentration

Three issues are raised by the 2 mergers of Big 8 accounting firms. Through the use of concentration ratios and Herfindahl indices, the effects of the mergers upon concentration on NYSE, AMEX, and OTC companies are examined. Concentration is also examined on the basis of the audit fees of the major accounting firms. A discussion of the impacts of the mergers, both at the level of the individual firms involved, and at the level of the large client audit industry is provided. The results indicate that the mergers resulted in increased concentration ratios, whether measured by the number of firms audited, client revenues, or audit fees, at the 4, 6, and 8 firm levels. A comparison of the pre and post-merger 4 and 6 firm Herfindahl indices indicate fairly consistent movement toward the equal size index. The 8 firm Herfindahl indices indicate that the difference between the pre-merger Big 8 firms, and the largest 8 firms today is significantly different.