Competition and Big-Six Brand Name Reputation : Evidence from the Ontario Municipal Audit Market

In June 1991, Section 86 of the Ontario Municipal Act, which governs the appointment of municipal auditors, was amended to require all Ontario municipalities to review the appointment of their auditors periodically. Prior to the amendment, municipalities could remove the incumbent auditors only for quot;just causequot;. In this paper, we study the effect of removing this barrier to entry through legislative amendment on competition in the Ontario municipal audit market by examining intertemporal changes in real audit fees; and examine the effect of competition on Big-Six audit fee premiums for the government sector. The results indicate that there is a general reduction in real municipal audit fees, compared to the pre-amendment levels. However, notwithstanding the heightened competition, the Big-Six audit firms continue to command audit fee premiums over the non Big-Six audit firms. This suggests that Big-Six audit fee premiums possibly reflect brand name reputation rather than monopoly rents