Variables definitions and measurements
| Variables | Definitions/measurements |
|---|---|
| Dependent variable | |
| Audit quality (AuditQuality) | Audit quality is measured by the absolute value of abnormal working capital accruals (AWCA) |
| Independent/reference variables (joint audit pairs) | |
| B4B4 | A pair consists of two of the Big Four firms, such as Deloitte, EY, KPMG, and PwC |
| B4S1 | A pair consists of one Big Four firm and one non-Big Four international firm, such as Nexia, Grant Thornton, Crowe, BM&A, Mazars, Baker Tilly, PKF, RSM, BDO |
| B4S2 | A pair comprises one Big Four firm and one non-Big Four local firm, neither of which is identified as B4 or S1 |
| S1S1 | A pair consists of two non-Big Four international audit firms |
| S1S2 | A pair consists of one non-Big Four international audit firm and one non-Big Four local audit firm |
| S2S2 | A pair consists of two local audit firms that are not identified as B4 or S1 |
| Control variables | |
| Subsidiaries (Sqrt_Sub) | Square root of the number of subsidiaries of firm i in year t |
| Loss (loss) | A variable that equals 1 when net income is negative, and 0 in all other cases |
| Return on assets (ROA) | Ratio of net income of firm i reported for year t to the total assets of firm i at the end of year t |
| Leverage (LEV) | Ratio of total debt to total assets of firm i at the end of year t |
| Closely held shares (SHARES) | The percentage of closely held shares |
| Liquidity (LIQ) | The ratio of current assets to current liabilities |
| Auditor’s opinion (OPINION) | In year t, a firm is assigned a score of one (1) if the audit opinion is unqualified; otherwise, it receives a score of zero (0) |
| Market-to-book value of equity (MTB) | The ratio of the market value of equity of firm i at the end of year t to the book value of equity of firm i at the end of year t |
| Busy season (BUSY) | It is one for firms whose fiscal year ends on 12/31 and zero for all others |
| Client size (LnTA) | Natural logarithm of firm i’s total assets at the end of year t |
| Auditor change (CHANGE) | A value of 1 indicates that the client firm changed at least one auditor during the year, whereas a value of 0 means no change |
| Company age (Sqrt_Age) | Square root of the number of years since establishment |
| International Financial Reporting Standards (IFRS) | In year t, a firm receives a score of one (1) if it adopts IFRS standards; otherwise, it is assigned a score of zero (0) |
| Auditor industry specialization (SPEC) | Dummy variable equal to 1 if at least one audit firm is an industry specialist and zero otherwise |
| National Governance Index (NGI) | The average of six indices is as follows:
|
| Variables | Definitions/measurements |
|---|---|
| Audit quality (AuditQuality) | Audit quality is measured by the absolute value of abnormal working capital accruals ( |
| B4B4 | A pair consists of two of the Big Four firms, such as Deloitte, EY, KPMG, and PwC |
| B4S1 | A pair consists of one Big Four firm and one non-Big Four international firm, such as Nexia, Grant Thornton, Crowe, BM&A, Mazars, Baker Tilly, PKF, RSM, |
| B4S2 | A pair comprises one Big Four firm and one non-Big Four local firm, neither of which is identified as B4 or S1 |
| S1S1 | A pair consists of two non-Big Four international audit firms |
| S1S2 | A pair consists of one non-Big Four international audit firm and one non-Big Four local audit firm |
| S2S2 | A pair consists of two local audit firms that are not identified as B4 or S1 |
| Subsidiaries (Sqrt_Sub) | Square root of the number of subsidiaries of firm i in year t |
| Loss (loss) | A variable that equals 1 when net income is negative, and 0 in all other cases |
| Return on assets ( | Ratio of net income of firm i reported for year t to the total assets of firm i at the end of year t |
| Leverage ( | Ratio of total debt to total assets of firm i at the end of year t |
| Closely held shares ( | The percentage of closely held shares |
| Liquidity ( | The ratio of current assets to current liabilities |
| Auditor’s opinion (OPINION) | In year t, a firm is assigned a score of one (1) if the audit opinion is unqualified; otherwise, it receives a score of zero (0) |
| Market-to-book value of equity ( | The ratio of the market value of equity of firm i at the end of year t to the book value of equity of firm i at the end of year t |
| Busy season ( | It is one for firms whose fiscal year ends on 12/31 and zero for all others |
| Client size (LnTA) | Natural logarithm of firm i’s total assets at the end of year t |
| Auditor change ( | A value of 1 indicates that the client firm changed at least one auditor during the year, whereas a value of 0 means no change |
| Company age (Sqrt_Age) | Square root of the number of years since establishment |
| International Financial Reporting Standards ( | In year t, a firm receives a score of one (1) if it adopts |
| Auditor industry specialization ( | Dummy variable equal to 1 if at least one audit firm is an industry specialist and zero otherwise |
| National Governance Index ( | The average of six indices is as follows: Voice and accountability Political stability and absence of violence Government effectiveness Regulatory quality Rule of law Control of corruption |
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