Entry, Exit, and Market Share Mobility in Audit Markets: Evidence from Germany and the Netherlands

Abstract

This paper provides an empirical analysis of the structure of two national audit markets and makes two contributions. First, it provides a dynamic analysis in terms of audit market share mobility, and audit firm entry and exit. Second, it presents results for complete audit markets. Prior research on audit market structure has focused on static analyses of single national audit markets. In addition, prior research has focused on subsets of audit markets by using data on larger audit firms only. By using data on the number of auditors as the measure of audit firm size this paper covers all firms active in the audit markets in Germany, and the Netherlands. The data are taken from membership lists of professional organizations of auditors in the two countries under study and cover eight points in time in the period 1970 - 1994. The results show that high (low) concentration can go hand in hand with high (low) market share mobility, and high (low) audit firm entry and exit. The results also indicate that the Dutch audit market, which is the most liberal market in terms of audit regulation, has the highest dynamic measures of market structure and the highest concentration. The results for 1market share mobility also hold for an analysis only including the largest audit firms. The paper concludes that compared with the traditional static analyses, a dynamic analysis of complete markets provides more information on the degree of competition in audit markets.

JEL Classification: M49, L10