“The Original Gangsters: The Big 4 Auditors in Their Early Days​”

Muhan Hu

University of Strathclyde

Abstract: Today’s ‘Big 4’ accounting firms are much larger and perceived to be of higher quality than others. Whether this relationship is causal or coincidental is difficult to distinguish in the modern era. We examine the British IPO market at the turn of the 20th century, when all accounting firms were small. We find that the predecessors of today’s ‘Big 4’ reported profits in the prospectus of a similar level to the profits of the IPO firm after it became public. However, IPO firms audited by other accountants of similar size saw a drop in profits, post-IPO, of roughly 40 percent. (co-authored with Sturla Fjesme, Neal Galpin and Lyndon Moore)