How does the client’s risk profile affect their price sensitivity for auditors?

This paper examines whether client risk profile moderates audit fee sensitivity in auditor selection. Using a pre-cleaned firm-year dataset of 5,008 U.S. publicly traded firms in fiscal years 2010-2011, we estimate a mixed logit model with a composite risk-fee interaction that allows fee sensitivity to vary across clients. The result shows that a higher audit fee significantly reduces the chance of an auditor being chosen (−3.510, p < 0.001) and risk-fee interaction is positive and significant (1.161, p < 0.001), which means riskier firms are less sensitive to price. The large SD on fee (SD = 3.59) and risk-fee interaction (SD = 5.77) shows substantial heterogeneity among clients. A size-split robustness check further suggests that the risk-related moderation in fee sensitivity is concentrated among larger firms, while the interaction is not statistically significant among smaller firms.