PURPOSE – This study aims to contribute to the understanding of audit pricing and the
competitiveness of the audit fee market by examining audit fee stickiness.
DESIGN/METHODOLOGY/APPROACH – The authors explore the price behavior of audit fees in response
to changes in the variables that are usually seen as their determinants, such as size, complexity, and
risk in order to examine audit fee stickiness and the competitiveness of the market for audit services.
FINDINGS – The authors find that audit fees are sticky, i.e. audit fees do not immediately or fully
adjust to changes in their determinants. Audit fees also respond to changes leading to an increase more
quickly than they respond to changes leading to a decrease. The difference between positive and
negative fee adjustments declines over periods longer than one year and is no longer significant when
four-year periods are considered.
RESEARCH LIMITATIONS/IMPLICATIONS – The study is limited to companies in the USA from 2000 to
2008. Future research should examine this issue in other settings and periods.
Practical implications – The results suggest that the audit market is competitive, at least in the
ORIGINALITY/VALUE – The study helps to explain why the audit fee model does not fully explain the
level of audit fees; why audit fees are more likely to be too high than too low; and why auditor switches
are commonly associated with larger changes in audit fees. The findings provide evidence that may be
useful to managers and audit committees when managing their audit fees, auditors when considering
the risks and opportunities associated with changes in the determinants of audit fees, and regulators
concerned with the competitiveness of the audit market.