Would regional competition pressure affect audit quality? Evidence from a spatial distribution of the audit market

Abstract

AbstractThis study finds that the greater the pressure of regional competition, the more likely auditors are to issue aggressive audit reports that could damage audit quality. This phenomenon exists mainly in the increasing number of small audit offices in the same region. However, the increasing number of local Big 6 audit offices positively impacts audit quality. Furthermore, individual interviews and penalties on auditors by government agencies can effectively mitigate the negative impact of regional competition pressure on audit quality. This study expands the literature on how audit market competition affects audit quality and provides insights into regulation‐setters.