Monday, November 14, 2016

Big Four: hit by financial crisis and domestic competition - Paul Gillis

Paul Gillis
Paul Gillis
Accounting professor Paul Gillis dives further into the demise of the Big Four accounting firms in China, at his weblog. After a successful entry into the China market, both the financial crisis and domestic competition wiped away whatever advantage they had.

Paul Gillis:
This chart tells the story. It shows growth rates of the Big Four compared to local Chinese CPA firms over the past dozen years. The Big Four were growing at a spectacular rate in the early 2000s, with growth peaking at an astonishing 57.4% in 2004, driven by high levels of overseas IPOs by Chinese companies and huge foreign investment in China by multinational corporations. Local CPA firms were growing well, but at a pace behind the Big Four. 
That all changed with the global financial crisis. The Big Four suffered negative growth of 12.1% in 2008, while local firms kept growing at 26.5%. The Big Four returned to growth in 2009, but have lagged local firms ever since. The main reason, from what I can tell, is that Chinese companies shifted from looking overseas for capital to domestic markets that provided higher valuations. The problem for the Big Four is that they have failed to present a compelling case for why they should audit companies listed on Chinese stock exchanges, and nearly all of that work is done by local firms. 
Two local firms that belong to international networks were the 2nd and 3rd largest firms in China in 2015. I expect that earlier this year Ruihua, a Chinese CPA firm affiliated with both Crowe Horwath and RSM, overtook PwC to take the No. 1 slot in China. Ruihua and the Chinese affiliate of BDO had already overtaken the other three members of the Big Four.
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More at the ChinaAccountingBlog.

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