The effect of SOX on small auditor exits and audit quality

► Over six hundred audit firms with less than 100 SEC clients exit the market following passage of SOX. ► This exodus halves the number of auditors while doubling the client concentration per audit firm. ► The exiting auditors are lower quality when compared to the non-exiting auditors. ► Clients of the exiting auditors receive higher quality auditing from their successor auditors. ► Our findings suggest that SOX incentivized lower quality auditors to exit the market.