Stochastic and nonstochastic determinants of changes in client-industry concentrations for large public-accounting firms

Abstract Market-concentration ratios of audits of large publicly held firms have been found to be high by Zeff and Fossum (1967), Rhode et al. (1974), and Campbell (1981). Both stochastic (random) forces and nonstochastic (deterministic) forces may cause increased concentration ratios. To determine the affects of stochastic forces on audit-concentration ratios, a computer simulation was developed using Gibrat's (1931) theorem. The results of the simulation indicate that the volatility of the concentration ratios may be affected by nonstochastic forces as well as by stochastic forces. The nonstochastic forces are described and discussed vis-a-vis the public-accounting profession's competitive environment.