An Empirical Investigation of Audit Market of Publicly-Traded Companies in Taiwan

With the growing economy, the capital market in Taiwan is expanding at a greater pace. An important institution that facilitates the functioning of the market is the public accounting profession. This profession provides independent audit on the financial statements used by many different participants in the market to make their economic decisions. While regulatory agencies of capital market are taking steps to improve the quality of financial information, the market for audit service is also undergoing structural change. This paper examines the change in audit market of publicly-traded companies in Taiwan from 1982 to 1989 and explores plausible explanations for such a change. The analyses from collected data suggest large accounting firms are expanding both in the markets of new publicly-traded companies and of companies already traded in Taiwan Stock Exchange. In the meantime, the audit market of publicly-traded companies is shrinking for small accounting firms. The results suggest that the needs for credibility of financial statements and organizational controls due to the changing environment contribute to the change in audit market.