Shidler Seminar Series—SOA Guest Speaker Bharat Sarath

The Shidler College of Business cordially invites you to the

Shidler Seminar Series

featuring SOA Guest Speaker

Bharat Sarath, Rutgers University

Friday, January 17, 2014
3 - 4:30 p.m.
BusAd G301
Topic: Effects on Audit Market Shares: BIG-4 Pricing Strategies or Non BIG-4 Market Power?

We analyze changes in audit fees and market shares of the BIG-4 audit firms (KPMG, PWC, D&T, E&Y) as compared with those of NB-4 (Non-Big 4) auditors in the period 2000-2011. Both relative fees and relative market shares (compared across BIG-4 and NB-4) auditors changed radically over this period due to the enactment of the Sarbanes-Oxley Act (SOX). In addition, one of the major audit firms, Arthur-Andersen (AA) was driven out of business. We exploit variations in the effects of these two events across industries and across size quintiles to examine changes in pricing strategies and market shares of BIG-4 and NB-4 auditors. In particular we examine whether the market share changes have been driven primarily by the BIG-4 deterring clients through pricing strategies (which we characterize as ‘cherry picking’) or through more effective competition by NB-4 auditors (which we characterize as NB-4 market power). Our empirical results suggest that both these factors have played a significant role in the realignment of the market share for audit services across BIG-4 and NB-4 auditors following the enactment of SOX and the collapse of AA.

After completing his Ph.D in mathematics at the University of Calgary in 1976 and his Ph.D. in Accountancy in 1988 from Stanford, Dr. Sarath has taught at NYU, Baruch, and Rutgers where he is currently a Professor of Accountancy. He has published in many leading journals including Contemporary Accounting Research, Review of Accounting Studies, and Journal of Accounting Auditing and Finance where he is currently Editor. In addition to English he is fluent in Tamil, Hindi, Sanskrit, Russian and Farsi.