Title: Potential market redistribution following a big four accounting firm failure

Authors: Elizabeth A. Donovan; Charles Graves; Amanda M. Grossman; Dan Harris

Addresses: Jesse D. Jones College of Science, Engineering and Technology, Murray State University, Faculty Hall, Room 6C, Murray, KY 42071, USA ' Arthur J. Bauernfeind College of Business, Murray State University, 130 Business Building, Murray, KY 42071, USA ' Arthur J. Bauernfeind College of Business, Murray State University, 130 Business Building, Murray, KY 42071, USA ' Arthur J. Bauernfeind College of Business, Murray State University, 130 Business Building, Murray, KY 42071, USA

Abstract: This work investigates potential market effects of the hypothetical failure of a big four accounting firm, emphasising how audit and accounting services would be redistributed among the remaining firms. Using graph-theoretic techniques and historical data based upon the failure of Arthur Andersen in 2002, three models of a post-failure redistribution of services are considered. The first model assumes that no mergers/acquisitions occur post-failure amongst the largest accounting firms, besides the redistribution of the failed firm's employees and clients. The second and third models assume that several non-big four firms merge together to create 'the merger', which becomes the approximate size of the pre-failure firm. The results indicate that at least two of the remaining 'big' firms would switch ranks in terms of global revenues, and that the merger becomes as comparatively efficient as the continuing 'big' firms when measured by average revenues generated per employee.

Keywords: accounting; big four failure; market redistribution; network flow model.

DOI: 10.1504/IJEA.2021.116698

International Journal of Economics and Accounting, 2021 Vol.10 No.3, pp.278 - 298

Received: 13 Dec 2019
Accepted: 11 Jun 2020

Published online: 11 Jun 2021 *

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