The interdependence between market structure and the quality of audited reports: the case of non-audit services

Abstract This paper addresses the effects of a prohibition providing non-audit services (NAS) to audit clients. By combining strategic auditor–client game with circular market-matching model that has an endogenous number auditors, we take into account interdependence between auditors’ and clients’ incentives, market structure, quality audited reports. We show regulation’s depend on preexisting concentration types blacklisted NAS. In sharp contrast regulators desire, NAS clients can further increase decrease reports if fees auditors previously earned from were relatively high, compared reduction in costs result spillovers. contrast, generate intense spillovers low have unexpected—but desired—effect decreasing concentration; however, reporting also decreases.