Partnership versus Public Ownership of Accounting Firms: Exploring Relative Performance, Performance Measurement and Measurement Issues

Article excerpt


Despite theoretical arguments that partnerships are the most efficient ownership form for professional service firms (PSFs), PSFs are increasingly moving to other ownership structures, such as publicly listed companies (PLCs). Research on the comparative performance of PSF, PLCs and partnerships is sparse with conflicting results suggesting that some segments of PSFs are moving to a less efficient form. This study explores the performance of two Australian accounting PLCs compared to a sample of similar sized mid tier accounting firms. The accounting PLCs achieved substantially higher revenue growth rates but lower productivity than the partnership sample. Measurement issues were identified in the use of closing resource numbers and different treatment of reporting merger and acquisition revenues which may partially explain the underperformance of publicly owned PSFs in prior studies. The need for research at a more detailed level exploring the market and service focus, organisational structures, resources utilised and resource costs across different PSF ownership forms is suggested.2

Keywords: Professional services, partnership, public ownership, accounting firms, performance, publicly quoted

JEL Codes: L22, L25, L84, M41.


Since American Express started acquiring accounting firms in the 1990s (Shafer, Lowe & Fogarty 2002), publicly listed accounting companies have emerged as substantial organisations. Through rapid growth, accounting publicly listed companies (PLCs) have become larger than all but the 'big four' accounting firms in Australia (King 2010) and the US (Accounting Today 2011) and include the seventh largest accounting firm in the UK (Grant 2010).

More broadly, there has been a trend across a number of other professions away from the partnership form of ownership to other structures including limited liability partnerships, incorporation and PLCs (Greenwood, Deephouse & Li 2007; Greenwood & Empson 2003; Von Nordenflycht 2007). While the partnership form has been theorised to be an important attribute of the performance of professional service firms (PSFs) (Greenwood & Empson 2003), there has been limited research of the relative performance of different forms of ownership of these types of organisations (Greenwood et al. 2007; Von Nordenflyct 2007). Despite the significant size of PLCs providing accounting as their dominant service no previous studies were identified exploring the performance of these organisations.

Related studies of the relative performance of different forms of ownership of large consulting firms (Greenwood et al. 2007) and advertising firms (Von Nordenflycht 2007) conclude that for some segments the movement to publicly owned companies is to a less efficient form. Measuring the relative performance of different ownership forms is problematic due to the lack of access to financial information on private partnerships with innovative researchers using proxies of profitability sourced from published industry surveys (eg. Greenwood et al. 2007; Von Nordenflyct 2007).

There have been calls for further research to gain an insight as to why PSFs are moving to a less profitable ownership form (Greenwood et al. 2007). The limited research to date, information constraints, use of inconsistent proxy measures of performance and somewhat confusing prior findings suggest the need for exploratory analysis into performance measures themselves and the use of published industry survey data.

This paper explores the performance of two Australian publicly owned accounting companies in comparison to a sample of ten second tier accounting partnerships using publicly available proxy measures, revenue growth and revenue per person, adapted from prior studies (eg. Greenwood et al. 2007; Von Nordenflycht 2007). Performance is taken from the perspective of the residual claims of owners rather than the professionals (agents). …