Study On The Effect Of Mergers Between Local Accounting Firms On Audit Quality

After reviewing the history of accounting firms all over the world, it is easy to observe that the merger plays an important role in the development of accounting firms, so does the “Big4”. From the 80 s in the last century, China’s CPA industry has undergone a huge development, but due to the reasons like the short development history and weak basis, there is a still relative large gap between overall level of China’s CPA industry and that of western countries. Therefore, the China’s government, regulatory agencies, pracitcing profession and academic communities have reached a consensus, that they hope accounting firms can be “bigger and stronger” and achieve economies of scale by the way of mergering. From the end of last century, China’s CPA industry has undergone three big waves of merger.Escpecially since 2007, a series of policies have been issued by the releative department of country to encourage mergers among the accounting firms. The policies remove the institutional barriers and promote accounting firm mergers further. Since then, there are more mergers between local accounting firms than ever.Audit quality is fatal for CPA industry, and also, it is the basis for survival accounting firms. The purpose of merger is not only expanding the scale of accounting firms, but also improving the core competitiveness and enhancing the professional competence. People are worried about that, as the accounting firms do really be bigger than before after the merger, but whether the accounting firms have stronger competence? Whether the accounting firms improve audit quality.This paper uses a combination of normative and empirical method to research. In this paper, the reputation theory, the deep pocket theory and the synergistic effect theory are the main theories to analyse how the merger between accounting firms make influence on audit quality. This paper uses some indexs related to earnings management as proxy variable of audit quality. With accounting firms suffered mergers from 2007 to 2012, this paper uses data that belong to the two years prior and after the merger to examine the effect of accounting firms mergers on audit quality.Research shows that: Generally speakinig, the mergers do really make accounting firms be bigger than before, but can not improve audit quality significantly. If we distinguish the types of mergers, the conclusion is different. If the merger occurs between two big accounting firms, it can make a positive influence on quality significantly. But if the merger occurs between a big accounting firm and a smallaccounting firm, or the merger occurs between two small accounting firms, it may harm the audit quality, let alone improve audit quality.In the end, this paper supplies some suggestions for regulatory agencies and accounting firms. First, The accounting firms should be careful to choose appropriate cooperative accounting firms. Second, the accounting firms focus on audit quality during the period of merger and lay emphasis on resource integration. Last, the regulatory agencies should fulfill their responsibilities of supervision.