Article2018

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

Hsihui Chang · Yingwen Guo · Phyllis Lai Lan Mo

64 citations0/0 files storedAuditing A Journal of Practice & Theory

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Auditing, Earnings Management, Governance Accounting and Organizational Management Corporate Governance and Financial Management

Abstract

SUMMARY This study examines how audit fee stickiness varies with changes in market competition in China and its effect on audit quality. The Chinese audit market structure has changed significantly since the Chinese Institute of Certified Public Accountants (CICPA) issued a proposal to enhance the competitiveness of large domestic audit firms by promoting the consolidation of domestic audit firms in 2007. Using a sample of Chinese listed firms, we find a decrease in upward stickiness and an increase in downward stickiness as market concentration increases in the post-Proposal period. The asymmetry between upward and downward fee stickiness is greater in local markets that are more dominated by the top 10 domestic auditors. Moreover, we find that upward (downward) fee stickiness has a negative (positive) association with audit quality as measured by earnings management and auditor reporting conservatism. JEL Classifications: D40; M42.

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References

2002The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors 1980The Pricing of Audit Services: Theory and Evidence 2003Are Selling, General, and Administrative Costs “Sticky”?2002Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions 2008State ownership, the institutional environment, and auditor choice: Evidence from China 2004Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia 1997Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?2006Audit Partner Tenure and Audit Quality

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