The 1989 “megamergers” (creating Ernst & Young and Deloitte & Touche), as well as recent merger activity within the accounting profession, have attracted widespread attention from regulators. Given the magnitude of such mergers, and the regulatory interest generated by them, it becomes increasingly important to understand the impact that such mergers have within the public accounting market.
This study is a descriptive exploratory investigation into the effects of the 1989 mergers. Data for the firms involved in the mergers were compared to data for competitor firms not involved in the mergers (direct rivals) to help to control for the effect of market forces. The post‐merger period was characterized by a slight decline in market share for the merged firms compared to their direct rivals, a decline in audit price for both groups, and a decrease in factor costs for the merged firms relative to their direct rivals.
The results of data analysis are consistent with the premise that 1989 megamergers predominantly resulted in increased efficiencies within the audit market that were then passed through to end‐users in the form of lower prices. Further study is needed to determine whether these efficiencies within the audit market were offset by market power influences in nonaudit services.