How Is the Audit Market Affected by Characteristics of the Nonaudit Services Market?

How can features of the markets for audit and nonaudit services (NAS) affect an firm's incentives to invest in quality, average social welfare? We address these questions a model focusing on competition both NAS markets. show that, when demand are positively correlated, prohibiting auditors from providing clients leads higher investments but decrease quality if marginal switch lower auditors. The effect welfare be positive or negative, depending distribution clients' service demands. General bans auditor provision can, via similar channels, increase welfare. Overall, our findings suggest more nuanced view how regulating auditor's might welfare, driven by effects multimarket rather than previously identified independence knowledge spillover channels.