Effects of disclosed audit sanctions on audit firm's market share in Italy and Spain

We use neo‐institutional theory to investigate the effect of disclosed audit sanctions on change in audit firm market share. Using hand‐collected data from public oversight board sanctions on audit firms in Italy and Spain, we show that disclosed audit sanctions have a negative effect on change in audit firm market share. Moreover, we find that for Big4, severe disclosed audit sanctions have a greater negative effect. We contribute to the literature on public oversight authorities, showing that through disclosing audit sanctions, they help investors to select higher quality auditors, who are able to avoid sanctions and charge a market share premium.