The effect of audit market deregulation on audit competition and quality
Vol. 24, No. 1/2025 , p5..25
Author(s):
Marios Fasoulas
Evangelos Chytis
© 2025. This work is openly licensed via CC BY 4.0.
Keywords:
Audit quality, deregulation, audit fees, earnings quality, audit firm competition
Abstract:
Purpose: This paper examines the effect of minimum audit fee reserve deregulation on audit quality. Specifically, we examine the impact of the 2011 audit fee deregulation in Greece.
Design/methodology/approach: Our sample consists of 120 firms listed on the Athens Stock Exchange, from twelve industries. The period of observation is 10 years, with 1.200 firm-year observations. The examined period is divided into the five years prior to the deregulation (2007-2011) and those after it (2012-2016) to illustrate the impact of the audit deregulation. We use earnings quality as an audit quality proxy, set various independent variables as suggested by existing literature and conduct a difference in difference (DID) analysis and robustness tests. To estimate abnormal accruals we use the same model as Han and Wang (1998).
Findings: Our results indicate a statistically significant negative relationship between audit quality and deregulation, which suggests that augmented competition of audit firms has a negative effect on audit quality.
Originality/value: This study adds the case of Greece to the existing literature on the impact of audit deregulation on audit quality. The results corroborate the stream of research that finds a positive association between audit fee deregulation and audit quality decrease. To the authors’ best knowledge, this is the first similar study conducted in a European economy. In addition, our findings suggest that policy makers should carefully plan deregulations especially in jurisdictions with an emerging capital market distinguished by a low degree of supervisory effectiveness and poor investor protection mechanisms.
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http://online-cig.ase.ro/jcig/art/24_1_1.pdf
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