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The Impact of the Big 8 Mergers on Market Power: Evidence from the Hong Kong Market
Author(s) -
Sukyee Lee Dominica
Publication year - 2005
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/j.1467-646x.2005.00112.x
Subject(s) - market power , audit , business , market share , market concentration , mergers and acquisitions , finance , industrial organization , accounting , economics , market economy , market structure , monopoly
This study examines the impact of the Big 8 mergers on market power in an audit market where the merging firms have little presence. Audit fee changes for each merger participating firm are identified and fee changes for several post‐merger years are examined. The pre‐merger differential market power between the merging and non‐merging long‐established Big 8 firms (Price Waterhouse and KPMG Peat Marwick) in Hong Kong provides a unique opportunity to examine whether the mergers could help the merging firms to increase their market power. The results are consistent with the hypotheses that the audit fees of the merging firms were significantly lower than that of the non‐merging, long‐established Big 8 firms before the mergers, but the audit fees of the merged firms increased significantly to a level comparable with that of the latter group after the mergers. In addition, the market share of the merged firms increased significantly after the mergers. However, no association is found between market concentration and market power. Overall, the results show that the Big 8 mergers have helped the merged firms increase their market power and market share in the Hong Kong audit market where they had little presence.