Measuring large UK accounting firm profit margins, mergers and concentration: a political economy of the accounting firm

Owen, A. Sion (2003) Measuring large UK accounting firm profit margins, mergers and concentration: a political economy of the accounting firm. auditing & accountability journal, 16 (2). pp. 275-297. ISSN 0951-3574

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Abstract

This paper examines the relationship between UK accounting firm mergers and increases in profit margins enjoyed by large UK accounting firms. Cowling’s monopoly capitalism model provides the theoretical framework. The empirical parts of this paper draw on a number of quantitative sources, including the fees and staff numbers disclosed by UK accounting firms, official salary data and salary survey data. Correlation is used to show that the accounting firm data is a reliable source of evidence. The data are then used to construct an indicator of concentration, merger impact on concentration, and an indicator of big firm profit margins. Regression is used to estimate the close positive relationship between concentration and profit margins. The results confirm Cowling’s hypothesis that mergers lead to increases in profits. This paper complements Hanlon’s “commercialisation of accounting” thesis by providing an alternative theoretical framework for examining accounting firms and by bringing quantitative sources of evidence to bear.