Publisher:
University of Chicago Booth School of Business, Stigler Center for the Study of the Economy and the State, Chicago, IL
Abstract:
Private equity (PE) has moved rapidly into professional services, yet its impact on accounting, where licensing regimes, reputational capital, and partnership governance traditionally limit external ownership, remains poorly understood. We examine how PE ownership alters the organization and market structure of accounting firms using data from 1999-2024 that link more than 3,600 PE transactions to detailed information on mergers and acquisitions (M&A), labor markets, and audit pricing. PE investment increases sharply after 2020 and extends to both CPAlicensed audit firms and non-CPA advisory practices, with most activity in large mid-tier PCAOBregistered firms. After PE entry, firms grow faster: non-audit revenues rise, employment expands, and cross-state M&A accelerates, consistent with platform-building and consolidation. These adjustments have market-level implications. PE investment raises labor-market concentration in key accounting occupations and drives up ERISA audit fees in a standardized setting, as confirmed by a synthetic difference-in-differences design. Our results reveal a key tension at the core of professions: preserving independence and competition in a market increasingly driven by financial capital.
