Auditor Switching and Audit Fee Stickiness Following Audit Firm Ranking

Audit fees are affected by various factors, but changes in it are not fully explained by changes in the factors affecting audit fees. In fact, the rate of increase in audit fees, while expecting an increase in costs, is greater than the rate of decrease in audit fees, while expecting a decrease in costs, which is referred to as audit fee stickiness. Auditor switching can be one of the variables affecting the stickiness of auditing fees. The principal objective of this study is to investigate whether different types of auditor switches after audit firm rankings affect audit fees stickiness. For this purpose, the data of 691 firm-year observations (114 firms listed on the Tehran Stock Exchange) have been collected for the years 2013 to 2019. To analyze the data, regression model was used using panel data and STATA software. The results indicate that the effect of auditor change on auditor fee stickiness is insignificant and change of auditors from first types and other types to first type’s auditors does not have a significant effect on audit fee stickiness. Moreover, the change of auditors from the first types to other types does not have a significant effect on fee stickiness. Having said that, the change of auditor of other types to auditors of other types has a significant effect on fee stickiness, so that downward stickiness is less than upward stickiness and despite the increase in audit costs, auditors have not taken substantial actions to increase audit fees. The findings of the present study are in line with the theory of bargaining power. In centralized markets, auditors have more bargaining power, resulting in increased audit fees and downward stickiness in fees. However, in competitive markets (such as the Iranian market), clients have higher bargaining power and upward stickiness to the audit fee increases.