The initial data on auditing firms and their public clients were extracted from the September 1986 version of the Disclosure database [Disclosure Information Group, 1986). The name of the auditor, the type of audit report, the size of the client and its primary SIC code were identified for each of 9,691 domestic public companies that filed audited financial statements with the Securi• ties and Exchange Commission. For most companies, this includes financial statements for the December 31, 1985, year end