Competition in Auditing: Evidence from Entry,Exit, and Market Share Mobility in Germany versus The Netherlands*

This paper investigates the usefulness of a dynamic analysis of audit-market competition in terms of audit-market-share mobility, audit-firm entry, and audit-firm exit. These dynamic measures of market structure are compared between the more regulated German audit market and the more liberal Dutch audit market. Prior research on audit market structure has focused on static analyses in terms of seller concentration of single national audit markets. By using data on the number of auditors as the measure of audit-firm size, this paper covers all firms active in the two audit markets in the period 1970 to 1994. The results indicate that the more liberal Dutch audit market has the highest dynamic measures of market structure and the highest concentration. Hence, the results show that high concentration can go hand in hand with high-market-share mobility and high audit-firm entry and exit. The results for market-share mobility also hold for an analysis including only the largest audit firms. The paper therefore concludes, that compared with a static seller concentration analysis, an analysis of audit-market dynamics provides a better description of the degree of competition in audit markets.