Regulatory Spillovers in Common Audit Markets
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 repo...
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| Format: | Article |
| Language: | English |
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Institute for Operations Research and the Management Sciences (INFORMS)
2021
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| Online Access: | https://hdl.handle.net/1721.1/130357 |
| _version_ | 1811068951443013632 |
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| author | Sutherland, Andrew Gordon |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Sutherland, Andrew Gordon |
| author_sort | Sutherland, Andrew Gordon |
| collection | MIT |
| description | 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. |
| first_indexed | 2024-09-23T08:03:22Z |
| format | Article |
| id | mit-1721.1/130357 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T08:03:22Z |
| publishDate | 2021 |
| publisher | Institute for Operations Research and the Management Sciences (INFORMS) |
| record_format | dspace |
| spelling | mit-1721.1/1303572022-09-30T07:12:56Z Regulatory Spillovers in Common Audit Markets Sutherland, Andrew Gordon Sloan School of Management 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. 2021-04-05T14:21:54Z 2021-04-05T14:21:54Z 2019-11 2021-04-05T13:52:22Z Article http://purl.org/eprint/type/JournalArticle 0025-1909 https://hdl.handle.net/1721.1/130357 Duguay, Raphael et al. “Regulatory Spillovers in Common Audit Markets.” Management Science, 66, 8 (November 2019) © 2019 The Author(s) en 10.1287/MNSC.2019.3352 Management Science Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Institute for Operations Research and the Management Sciences (INFORMS) SSRN |
| spellingShingle | Sutherland, Andrew Gordon Regulatory Spillovers in Common Audit Markets |
| title | Regulatory Spillovers in Common Audit Markets |
| title_full | Regulatory Spillovers in Common Audit Markets |
| title_fullStr | Regulatory Spillovers in Common Audit Markets |
| title_full_unstemmed | Regulatory Spillovers in Common Audit Markets |
| title_short | Regulatory Spillovers in Common Audit Markets |
| title_sort | regulatory spillovers in common audit markets |
| url | https://hdl.handle.net/1721.1/130357 |
| work_keys_str_mv | AT sutherlandandrewgordon regulatoryspilloversincommonauditmarkets |