Accounting Firm Association Membership and Audit Firm Growth

In this study, we explore a topic of primary concern to small audit firms – attracting new clients. A potential avenue available to small audit firms to enhance their visibility and legitimacy among potential audit clients is to join an association of accounting firms. We examine whether small audit firms with accounting association membership have greater clientele growth than their peer audit firms without association membership. We separately explore growth in private and public clientele. Using hand-collected data, we find that, on average, small audit firms with accounting association membership have private (public) client growth over a two-year period of approximately 35 (4) percentage points more than those without association membership. We find that this growth is due to both gaining new entrants into the audit market and winning over clients from competitors. Further, we find that the reputation of an association positively affects the clientele growth seen by member firms. We find consistent results for public client growth of association members over a longer time period using Audit Analytics and Compustat Capital IQ data