This article finds that clients with greater risk of fraud are less likely to engage prospective auditors in competitive bidding, consistent with the theory that these companies seek to limit access to information that might reveal their high-risk status. In contrast, we find no support for the expectation that companies with higher agency costs will seek competitive auditor bids, due to the need for better monitoring. Our results also show that bidding competition is more likely when the bidding firm is not an industry specialist, when clients have more active corporate governance, and when there are difficulties with the predecessor auditor. (JEL D44, D82, M42) Recent events in the financial markets have focusedattentiononthenatureofcontractsbetween auditors and their clients. The auditorclient relationship has profound consequences for the financial markets as a whole, as amply demonstrated by the failures of large public companies, such as Enron, and the subsequent demiseof ArthurAndersen,one ofthe premier auditingfirms.Onceformed,theauditor-client relationship for public companies usually extends many years, as those companies rarely switch auditors. Thus, study of factors that influence the market for initial audit engagements is of theoretical and practical importance. However, in the past there has been little empirical evidence about how contracts between auditors and clients are made and structured. The purpose of this article is to investigate company managers’ decisions to engage competitive bids from prospective auditors or to privately negotiate with a single firm to obtain audit services. Private negotiation in this market is fairly prevalent. Rarely providedempiricaldatafromalargefirmshow thatduringoursampleperiod,onlyhalfoftheir bids for public and soon-to-be-public companies were faced with competition from other