This paper investigates the degree of market competition in the public accounting industry of Taiwan over the period of 1994-2008, using the 'R-statistic' proposed by Panzar & Rosse (1987). Differing from previous works, this paper applies the newly developed model, i.e., the censored stochastic frontier (CSF) model, to test whether audit markets under consideration have achieved the long-run equilibrium. The model is superior to the conventional one that requires researchers adding unity to dependent variable ROA for all observations to force the transformed dependent variable having a positive value and being able to take the natural logarithm. Evidence is found that Taiwan's accounting industry is characterized as either monopolistic competition, and over time has been a trend towards a fully competitive type. The CSF model confirms that market of Taiwan's accounting industry is already in the long-run equilibrium, which validates the use of Panzar-Rosse model.
Conversely, the employment of the conventional approach leads to a rejection of the long-run equilibrium in Taiwan's accounting industry.
