Strategies of the Big 4 Auditors to Gain Market Share in a Highly Competitive Setting
Speaker
Abstract
| In this paper we examine how Big 4 auditors compete for new clients in the private client segment of the Belgian audit market. In this setting the dominance of the Big 4 auditors is much lower than in Anglo-Saxon public client settings. In line with Simunic (1980) we argue that the atomistic segment of small clients is competitive while the oligopolistic segment of large clients is dominated by the Big 4. In contrast to prior studies, our setting is characterized by a large atomistic segment. We argue that Big 4 auditors will use fee discounting to attract new clients in the atomistic segment but that they will only do so in industries where they are also considered as the industry specialists in the oligopolistic segment. This condition not only enables these auditors to offer more value to their clients in the atomistic segment but it also facilitates fee discounting. Furthermore, we argue that these auditors strategically target those clients that value their services and hence have a higher likelihood of renewing the audit engagement after the initial mandate. Our results suggest that Big 4 industry specialists offer fee discounts to new clients in the industries of the atomistic segment where they are also specialists. However, consistent with our hypothesis we find that these discounts are only granted to those clients that are more likely to demand the services of a Big 4 industry specialist in the near future. |
| Contact information: |
| Paolo Perego |
