The purpose of this paper is to examine the effect of a client's potentially conflicting needs for privacy and industry expertise on auditor concentration.
The method examines the distribution of auditor concentration assuming that auditor choice occurs randomly. It then examines the observed distribution within the random assignment to consider whether the privacy or expertise motive dominates.
The main finding is that at the client industry level, clients in a dominant firm industry structure prefer privacy; whereas clients in a competitive market structure prefer expertise.
An implication of this paper is that an increase in the number of large auditors may change auditor concentration in client industries that prefer privacy, an auditor different from its competitor.
Policy makers should note that auditor concentration is not only a function of the number of auditors, but also of the client industry structure.
The results provide a new measure for industry specialists and provide additional insight regarding auditor choice when privacy is relevant.
