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Cited by 63Auditing, Earnings Management, GovernanceCorporate Governance and Financial ManagementOccupational and Professional Licensing Regulation

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Regulatory Spillovers in Common Audit Markets

Duguay, Raphael, Minnis, Michael, Sutherland, Andrew·2020·Management Science
DOI 10.1287/mnsc.2019.3352
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Abstract

We find that Sarbanes–Oxley (SOX) had two significant effects on the audit market for nonpublic entities. The first short-run effect stems from inelastic labor supply coupled with an audit demand shock from public companies. As a result, private companies reduced their use of attested financial reports in bank financing by 12%, and audit fee increases for nonprofit organizations (NPOs) more than doubled. The second long-run effect was a transformation in the audit supply structure. After SOX, NPOs were less likely to match with auditors most exposed to public companies, whereas auditors increasingly specialized their offices based on client type. Audit market concentration for NPOs dropped by more than one-half within five years of SOX and remained at this level through the end of our sample in 2013, whereas the number of suppliers increased by 26%. Our results demonstrate how regulation directed at public companies generates economically important spillovers for nonpublic entities. This paper was accepted by Suraj Srinivasan, accounting.

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Metadata

Authors
Duguay, R., Minnis, M., & Sutherland, A.
Affiliations
  • University of Chicago (US)
  • Massachusetts Institute of Technology (US)
Corresponding author
Sutherland, Andrew
ORCID
Venue
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Published
2020-08
Volume
66
Issue
8
Pages
3389-3411
ISSN
  • 0025-1909 (ISSN-L)
  • 1526-5501
DOI
10.1287/mnsc.2019.3352
OpenAlex
W2751381407
Cited by
63
References
1
Citations by year
2026: 13 · 2025: 9 · 2024: 6 · 2023: 9 · 2022: 6 · 2021: 7 · 2020: 5
FWCI
14.67
Type
journal article
Language
en
Open access
closed
Locations
  • Management Science (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
Funders
  • University of Chicago
  • Booth School of Business, University of Chicago
  • Social Sciences and Humanities Research Council of Canada
Topics
  • Social Sciences › Business, Management and Accounting › Accounting › Auditing, Earnings Management, Governance
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Corporate Governance and Financial Management
  • Social Sciences › Law › Occupational and Professional Licensing Regulation
Keywords
Sarbanes-Oxley Act, audit regulation, regulatory spillovers, audit market, nonprofit organizations, audit fees, bank financing, audit market concentration, auditor industry specialization

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