A Study On Excessive Competition Of The Audit Market Of China

According to the theory of industrial organization, market structure, market conduct and market performance are interrelated and interactive. Traditional theory of industrial organization thinks that the market structure in between plays a decisive role, and new theory of industrial organization thinks that the market conduct and market performance play a major and decisive role, the two representative viewpoints eventually have been developed for famous structure hypothesis and efficiency hypothesis of industrial organization theory. These two hypotheses lead to a lot of empirical research literatures.China's capital market and audit market are not long, and the related system is still imperfect, and the market mechanism has also failed to play its due role, and the role of "visible hand" is also not obvious. The true essence, audit market of China has birth defects, that is, in the initial stage of the socialist market economy, audit market of China has characteristics of excessive competition, such as low audit concentration and high competition intensity and low market performance. Modern theory of industrial organization analyzes the characteristics of excessive competition from the market structure, market conduct and market performance, therefore we also analyze excessive competition of audit market of China from these three perspectives.Excessive competition theory is a new field of the modern theory of industrial organization. In recent years, economic circles of China and researchers of industrial organization theory particularly have concerned about excessive competition issues, and produced a more abundant research results. Modern theory of industrial organization studies the phenomenon of excessive competition mainly from the market structure, market conduct and market performance, which provides us with a theoretical foundation and research methods to study excessive competition of the audit market from more multi-dimensional perspectives. According to the theory of industrial organization and the experience of developed countries, in the early stages of market development, market structure often plays a fundamental and decisive role. Therefore, in the audit market of China, these factors are interconnected and interacting, the market structure plays a fundamental and decisive role. To this end, we have analyzed market structure, market conduct and market performance according to industrial organization theory and SCP framework. This conclusion proves our views, that is, China has a decentralized market structure (low concentration, high competition intensity, etc.), resulting in unreasonable competition conduct (low-balling and audit opinion shopping etc.) and poor performance of the audit market (lack of economies of scale and lower audit quality, etc.). Therefore, it shows that audit market of China is an excessive competitive market in terms of market structure and market conduct and market performance. In order to overcome excessive competition in the audit market, we believe that excessive competition issues can be resolved through the superiority of the oligopolistic market structure. So we have proposed measures of establishment of an oligopoly market structure.The structure of this dissertation is as follows:Firstly, the introduction covers the issues, design and framework of the research.Chapter 1 outlines the theoretical basis of research on excessive competition of audit market of China i.e. the theory of industrial organization. This chapter discusses the core components of the theory of industrial organization, namely the market structure, SCP analytical framework of the industrial organization theory. Definition of excessive competition and the basic characteristics of excessive competition have been defined and summarized. We summed up the phenomenon of excessive competition of audit market in order to lay the solid basis of theory and methodology for the research.Chapter 2 deals with the analysis of audit market structure of China. The chapter thoroughly analyzed audit market structure of China mainly from the perspective of the market concentration. Results of statistical analysis show that audit market of China is of a very low concentration and high degree of competition, which is called the decentralized market structure, this market has typical structural characteristics of excessive competition. We believe that such a decentralized structure may lead to conduct of excessive competition and low market performance. To this end, the next chapter will explore phenomenon of excessive competition from market conduct and market performance.Chapter 3 discusses one aspect of the excessive competition audit market of China, that is, low-balling analysis. Low-balling is a typical example of the excessive competition. In the circumstances of excessive competition, the accounting firm will be taken to various improper means or acts to attract customers in order to survive and develop. Low market concentration and high competition intensity will lead to low-balling. Results of statistical analysis show that the judgment is correct, namely, audit market of China is competitive excessively from the perspective of audit market conduct.Chapter 4 touches on another aspect of the excessive competition audit market of China: audit opinion shopping analysis. In order to analyze profoundly the phenomenon of excessive competition of audit market in China, in this chapter, we focus on audit opinion shopping. Audit market structure of China is a decentralized market structure, and there are a lot of the small accounting firms of a single business in the market, and competitive intensity is high, and there is market imbalance in supply and demand. Under such circumstances, audit fees can be completely manipulated by clients, or clients change auditors to exert pressure to achieve the purpose of improving the audit opinion. Results of statistical analysis of this chapter show that there is audit opinion shopping in the audit market of China.Chapter 5 studies on the market audit performance of China: analysis of returns to scale and efficiency of accounting firms. One of the serious consequences of excessive competition is the loss of scale efficiency, resulting in decreased efficiency of resource allocation. According to economics and industrial organization theory, auditors may be the lack of economies of scale and scope economies in the dispersed market. In addition, in the circumstances of excessive competition, there may be conducts of low-balling and audit opinion shopping. This market structure and market conduct will lead to the loss of scale economies. As the result of market structure of excessive competition and corresponding market conduct, returns to scale and scale efficiency of the accounting firm is not obvious, even a marginal decline. Results of statistical analysis show that the judgment is correct.Chapter 6 studies on the market audit performance of China: analysis of perspective of audit quality. Excessive competition will inevitably undermine the independence of the audit and audit quality, resulting in low-quality auditing. In the decentralized market, there are a lot of the small accounting firms, and competitive intensity is high, and there is market imbalance in supply and demand, all these will lead to the lack of needs of audit real information. The pursuit of high-quality of audit reports will increase audit costs and reduce profits. To this end, in the case of excessive competition, auditors lack the motive of seeking high-quality audit reports. And low quality audit will lead to the loss of the ability of rational allocation of resources. In the circumstances of excessive competition, the audit quality of audit market of China is not optimistic. Results of statistical analysis show that audit qualities of China do not meet the expected standards.Chapter 7 tries to find the industrial organization policy solution to the excessive competition issues. As an oligopoly market can improve market efficiency and avoid excessive competition, the establishment of an oligopoly market is the fundamental way to resolve excessive competition issues. Therefore, this dissertation has proposed the industrial organization policy of the establishment of an oligopoly market.Finally, the author summaries the main conclusions made in the dissertation and some innovations and directions for future study.The dissertation has in-depth analyzed the excessive competition audit market of China from the three dimensions which are the market structure, market conduct and market performance, and the following conclusions are reached:Judging from perspective of market structure, market conduct or market performance, audit market of China is competitive excessively. It shows in the following aspects:Firstly, in the audit market structure: low market concentration , low barriers to market entry, many and small scale accounting firms, less product variety, high degree of competition.Secondly, in the audit market conduct: in the case of excessive competition, the price competition of audit market has become the most important competitive means, accounting firms have lower audit fees, although they can not guarantee the audit quality, and firms generally ignore professional unity. That is, accounting firms have the conduct such as low-balling. At the same time, the unreasonable market structure and imbalance in supply and demand lead to the conduct of audit opinion shopping.Thirdly, in the audit market performance: excessive competition will lead to the most direct consequences of the loss of economies of scale and low audit quality. As a low market concentration, many firms of small scale and less product variety, high competitive intensity, accounting firms achieve difficultly economies of scale and scope economies. At the same time, due to excessive competition, accounting firms can only receive a meager profit, or profit lower than normal level. Low audit fees and unreasonable market conduct will undermine the independence of the audit, and audit quality can not be guaranteed. This makes that the audit quality does not reach the required level.In addition, many problems roots in the excessive competition, and the root of excessive competition problem lies in unreasonable audit market structure. The audit market of China is a market which is decentralized and competitive market structure. This decentralized competitive market structures has a serious negative impact on the efficiency of audit market of China.Finally, in order to solve fundamentally the problem of excessive competition, we believe that the establishment of an oligopoly market structure is the fundamental way to optimize market structure and solve the problem of excessive competition, and this dissertation proposes the basic measures of the establishment of an oligopoly markets and presents the recommendations to resolve excessive competition.We use the theory of industrial organization, and study on phenomena of the audit market through standardized analysis and empirical analysis, and we can see the essence of its inherent problems. Namely, audit market of China is the market that is competitive excessively, and its main characteristics are: low market concentration , low barriers to market entry, many and small scale accounting firms, less product variety, high degree of competition, lack of economies of scale and scope economies, imbalance in supply and demand, low industry profit, poor audit quality, etc., all of which require a corresponding industrial policy and measures to be taken in order to improve the promotion of the competitive efficiency. At present, the most urgent and the most important task is to improve the concentration of the audit market, to develop the bigger and stronger China's accounting firms, the establishment of an oligopoly market structure, so as to avoid excessive competition and improve audit quality and efficiency of market competition and optimization of resources configuration, only in this way can the deep seated structural problem be resolved fundamentally.Overall, the major innovations of this dissertation are as follows: First, the dissertation has comprehensive and in-depth analysis of excessive competition of audit market of China according to the theory of industrial organization and SCP analytical framework. Second, from the perspective of the empirical research, the dissertation Carries out a series of rigorous empirical analysis from the three dimensions which are the market structure, market conduct and market performance so as to provide a strong support for the viewpoints and conclusions. Third, the extraordinary audit fee model is established on the basis of the traditional pricing model and related studies, to some extent, the model is innovative. Fourth, the dissertation points out that the substantive issue of the audit market of China is competitive excessively. So this dissertation proposes a series of policy recommendations and that the basic industrial organization policy is to establish an oligopoly market to solve excessive competition problems. The thorough analysis of the audit market of China and the viewpoint of the establishment of an oligopoly market structure will provide new and useful ideas to solve the problem of excessive competition, improve audit market mechanism of China and audit market supervision and regulation.