Abstract
In 1989 two "megamergers" occurred within the accounting profession. These two mergers (the merger between Ernst & Whinney and Arthur Yound to form Ernst & Young, and the merger between Deloitte Haskins & Sells and Touche Ross to form Deloitte & Touche) are recognized as the most significant mergers in the recent history of the public accounting profession. The purpose of this study is to determine the net effect of the 1989 megamergers on the market for audit services. Specifically, three hypotheses are tested in this study: 1) that the net effect of the mergers was predominantly the creation of market power, 2) that the net effect of the mergers was predominantly the creation of productive efficiency gains, and 3) that the net effect of the mergerws was some combination of these two effects, where neither effect was predominant. An economics-based methodology is used to analyze the effects of the mergers, where data for the firms involved in the mergers is analyzed both longitudianlly and cross-sectionally (versus the direct rivals of these firms). Specifically, the effects of the mergers are analyzed for the merged firms and their direct rivals in terms of changes in market share, product price, and production costs in the post-merger versus the pre-merger period. The two mergers are analyzed both indicidually and in aggregate. The results of data analysis are consistent with the productive efficiency hypothesis. Hence, the results are consistent with the premimse that megamergers predominantly resulted in increased efficiency within the market for audit services. Further, the Justice Department appears warranted in its decision not to contest the mergers, as the mergers do not appear to have adversely affected the degree of competition in the audit market. The methodology used in this study provides a solid framework for future studies of merger effects.
Ivancevich, Susan Hermanson (1994). An analysis of the market power versus efficiency effects of the 1989 megamergers within the accounting profession. Texas A&M University. Texas A&M University. Libraries. Available electronically from
https : / /hdl .handle .net /1969 .1 /DISSERTATIONS -1554642.