Accounting Firm Association Membership and Audit Firm Growth

Abstract

In this study, we explore a topic of primary concern to small audit firms – attracting public audit clients. A potential avenue available to small audit firms to enhance their visibility and legitimacy among potential public audit clients is to join an association of accounting firms (ACAP 2008; GAO 2008). We examine whether small audit firms with accounting association membership have greater public clientele growth than their peer audit firms without association membership. We find that member firms experience public clientele growth as measured by number of clients and revenues audited. We find that this growth is impacted by both gaining new entrants to the audit market and winning over clients from competitors. Further, we find that the reputation of associations positively affects the clientele growth seen by member firms. In additional analyses, we also find some evidence of private client growth of association members using LexisNexis® Company Dossier data.