The Structure of the Belgian Audit Market: the Effects of Clients' Concentration and Capital Market Activity

Abstract

Most national audit markets are dominated by a few relatively equal‐sized international audit firms. The likelihood of collusive behaviour in the market for audits is affected by the combined market share of the leading audit firms. This paper provides empirical evidence on the structure of the market for audits in Belgium. The main data set used in the study consists of about 10500 clients of Belgian audit firms in the year 1987. In that year only a publication containing detailed information on auditor—client relationships was published for the Belgian audit market. For more recent years, aggregated data on the Belgian audit market as a whole are included in this paper. The clients included in the data set are categorized into 62 different industry groups. For each industry the level of auditor concentration, measured by CR4, CR8 and the Hirschman—Herfindahl index, is computed. The results show that a loose oligopoly is the dominant market structure for audit industry groups in Belgium. The findings also indicate that concentration is influenced by the level of concentration of the underlying client industry, and by the level of clients' capital market activity.