Auditor Specialization in the Industry and Audit Market Structure

Objective: The market structure shows the organizational characteristics of the market that is identified by the nature of competition and pricing in the market. The results of previous researches show the effects of the structure of the audit market on audit fees, audit quality, and competition in...

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Autores principales:	Najmeh Rastegari, Gholamhossein Mahdavi
Formato:	article
Lenguaje:	FA
Publicado:	Shahid Bahonar University of Kerman 2020
Materias:	audit market structure auditor specialization concentration ratio herfindahl-hirschman index entropy index Accounting. Bookkeeping HF5601-5689
Acceso en línea:	https://doaj.org/article/b30636a0d8a741b6b101da7326ed1fd2
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spelling	oai:doaj.org-article:b30636a0d8a741b6b101da7326ed1fd22021-11-04T19:56:32ZAuditor Specialization in the Industry and Audit Market Structure2008-89142476-292X10.22103/jak.2020.14818.3103https://doaj.org/article/b30636a0d8a741b6b101da7326ed1fd22020-12-01T00:00:00Zhttps://jak.uk.ac.ir/article_2762_a68163caac607926b8c1c8c306d1ce6e.pdfhttps://doaj.org/toc/2008-8914https://doaj.org/toc/2476-292XObjective: The market structure shows the organizational characteristics of the market that is identified by the nature of competition and pricing in the market. The results of previous researches show the effects of the structure of the audit market on audit fees, audit quality, and competition in this market. Although this issue confirms the Structure-Conduct-Performance approach, according to the Chicago U.C.L.A. school, market performance affects market behavior and then market structure. Due to the importance of understanding the structure of the audit market and knowing how the market determines the fee and quality of auditing, identifying the factors affecting these two variables in the audit market is very important. Auditor specialization is one of the factors that affect the delegation of work to audit firms and the structure of the audit market. This issue increases the auditor market share in a particular industry because customers ask for the specialized services of auditors. The purpose of this research is to investigate the relationship between auditor specialization and audit market structure for the firms listed in the Tehran Stock Exchange (TSE) during 2007-2018. Method: Audit market structure was computed by concentration indexes, including concentration ratio, Herfindahl-Hirschman index, and Entropy Index. The total market shares of three auditing firms, the members of the Iranian Association of Certified Public Accountants with the highest market share per year, were used to calculate the concentration ratio. The market share approach was used for calculating auditor specialization. Data were collected for analysis using the Rahavard databases, the Codal site, and explanatory notes to the financial statements. For robustness tests, all three indices of the audit market structure including concentration ratio, Herfindahl-Hirschman index, and entropy index were calculated based on client sales. A Panel data model was used to test the research hypotheses. Results: Results showed that auditor specialization has a direct and significant relationship with three audit market indices of concentration ratio, Herfindahl-Hirschman index, and Entropy Index. With an increase (decrease) in the specialization of the audit firm industry, the audit market concentration increases (decreases). Similarly, control variables, which included client size and concentration, has a direct and significant relationship with audit market concentration. The results of robustness tests showed that if the audit market concentration indicators are calculated based on the sales of the client, the research findings are robust. Conclusion: Auditor specialization arisen from auditor behavior is an important factor in the distribution of the market among audit firms and audit market concentration, which is consistent with Chicago U.C.L.A. School. Therefore, audit firms are encouraged to increase their specialization in a particular industry so they can gain more market share in the long run.Najmeh RastegariGholamhossein MahdaviShahid Bahonar University of Kermanarticleaudit market structureauditor specializationconcentration ratioherfindahl-hirschman indexentropy indexAccounting. BookkeepingHF5601-5689FAمجله دانش حسابداری, Vol 11, Iss 4, Pp 97-128 (2020)
institution	DOAJ
collection	DOAJ
language	FA
topic	audit market structure auditor specialization concentration ratio herfindahl-hirschman index entropy index Accounting. Bookkeeping HF5601-5689
spellingShingle	audit market structure auditor specialization concentration ratio herfindahl-hirschman index entropy index Accounting. Bookkeeping HF5601-5689 Najmeh Rastegari Gholamhossein Mahdavi Auditor Specialization in the Industry and Audit Market Structure
description	Objective: The market structure shows the organizational characteristics of the market that is identified by the nature of competition and pricing in the market. The results of previous researches show the effects of the structure of the audit market on audit fees, audit quality, and competition in this market. Although this issue confirms the Structure-Conduct-Performance approach, according to the Chicago U.C.L.A. school, market performance affects market behavior and then market structure. Due to the importance of understanding the structure of the audit market and knowing how the market determines the fee and quality of auditing, identifying the factors affecting these two variables in the audit market is very important. Auditor specialization is one of the factors that affect the delegation of work to audit firms and the structure of the audit market. This issue increases the auditor market share in a particular industry because customers ask for the specialized services of auditors. The purpose of this research is to investigate the relationship between auditor specialization and audit market structure for the firms listed in the Tehran Stock Exchange (TSE) during 2007-2018. Method: Audit market structure was computed by concentration indexes, including concentration ratio, Herfindahl-Hirschman index, and Entropy Index. The total market shares of three auditing firms, the members of the Iranian Association of Certified Public Accountants with the highest market share per year, were used to calculate the concentration ratio. The market share approach was used for calculating auditor specialization. Data were collected for analysis using the Rahavard databases, the Codal site, and explanatory notes to the financial statements. For robustness tests, all three indices of the audit market structure including concentration ratio, Herfindahl-Hirschman index, and entropy index were calculated based on client sales. A Panel data model was used to test the research hypotheses. Results: Results showed that auditor specialization has a direct and significant relationship with three audit market indices of concentration ratio, Herfindahl-Hirschman index, and Entropy Index. With an increase (decrease) in the specialization of the audit firm industry, the audit market concentration increases (decreases). Similarly, control variables, which included client size and concentration, has a direct and significant relationship with audit market concentration. The results of robustness tests showed that if the audit market concentration indicators are calculated based on the sales of the client, the research findings are robust. Conclusion: Auditor specialization arisen from auditor behavior is an important factor in the distribution of the market among audit firms and audit market concentration, which is consistent with Chicago U.C.L.A. School. Therefore, audit firms are encouraged to increase their specialization in a particular industry so they can gain more market share in the long run.
format	article
author	Najmeh Rastegari Gholamhossein Mahdavi
author_facet	Najmeh Rastegari Gholamhossein Mahdavi
author_sort	Najmeh Rastegari
title	Auditor Specialization in the Industry and Audit Market Structure
title_short	Auditor Specialization in the Industry and Audit Market Structure
title_full	Auditor Specialization in the Industry and Audit Market Structure
title_fullStr	Auditor Specialization in the Industry and Audit Market Structure
title_full_unstemmed	Auditor Specialization in the Industry and Audit Market Structure
title_sort	auditor specialization in the industry and audit market structure
publisher	Shahid Bahonar University of Kerman
publishDate	2020
url	https://doaj.org/article/b30636a0d8a741b6b101da7326ed1fd2
work_keys_str_mv	AT najmehrastegari auditorspecializationintheindustryandauditmarketstructure AT gholamhosseinmahdavi auditorspecializationintheindustryandauditmarketstructure
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Auditor Specialization in the Industry and Audit Market Structure

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