In this study, we examine the association between industry homogeneity and auditor specialization. We find a significant association between our proxies for industry homogeneity (change in industry‐member operating expenses) and auditor specialization (auditor concentration and auditor focus) after controlling for extent of industry regulation, litigiousness, growth, client‐industry concentration, and the number of industry members. The positive relation between our specialist proxies and industry homogeneity indicates that auditors seek additional firms to audit in industries in which members have similar operations. This suggests that auditor specialization provides a cost‐based competitive advantage because the cost of developing expertise is spread over more clients. Thus, in contrast to recent criticisms of auditor concentration, specialization results in more efficient audits.

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