The Impact of Audit Fees Stickiness on Audit Quality - The Moderating Effect of Audit Client’s Financial Distress: Evidence from Egypt

Abstract

In terms of paying attention to the scarcity of auditing literature considering the stickiness behavior of audit fees, using an adjusted version of Anderson et al.’s (2003) general costs stickiness model, this study aims to examine the influence of the asymmetric upward and downward stickiness of audit fees on audit quality. After the recent intense economic changes and repetitive currency devaluations, Egyptian firms have faced financial uncertainties and shocks leading to their financial distress and/or bankruptcy. Therefore, this study aims to investigate the moderating effect of audit client’s financial distress on the relationship between audit fee stickiness and audit quality. Altman’s Z’-score model is used to identify the extent of firms’ financial distress. Multiple regression models have been used to test for the developed research hypotheses, using panel data of a sample of 86 manufacturing firms listed on the Egyptian Stock Exchange from 2015 through 2021. The results suggest that the timely upward and downward audit fee adjustments, implying audit fee stickiness, show no significant influence on audit quality. Additionally, the findings regarding the audit client’s financial distress indicate that there is no significant moderating effect on the relationship between the stickiness behavior of audit fees and audit quality.