The effect of the big eight accounting firm mergers on the market for audit services

The research assesses whether the two Big Eight mergers of 1989 were anticompetitive or efficiency enhancing. The study determines how a merger would affect the merged firm's probability of winning an auction to supply audit services under four different merger theories. A data set of 1,978 firms over a 12-year period is constructed to test these theories. The main conclusion of the analysis is that the Big Eight mergers of 1989 resulted in cost reductions that benefited relatively large audit buyers who switched auditors after the mergers. By combining the assets of the four constituent firms, the two merged firms were more successful in competing for large clients. This research adds to the small but growing literature on studies of actual mergers.