Market Competition, Audit Fee Stickiness, and Audit Quality: Evidence from China

What is it about?

This study examines how audit fee stickiness varies with market concentration and the impact of fee stickiness on audit quality in China. We find that audit fees tend to be stickier downwards than upwards after the CICPA released a proposal on enhancing the competitive power of domestic auditors. In the post-Proposal period, we find that the asymmetry in audit fee stickiness is enlarged in local markets that are more dominated by the top 10 domestic auditors. Furthermore, we document that upward stickiness have negative effects on audit quality, whereas downward stickiness is positively associated with audit quality. This study adds to the literature by addressing the contemporaneous relationship between audit fee stickiness and market competition, and the economic consequences of audit fee stickiness.

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