Controlling endogeneity with client and audit firm fixed effect
| Variables | (1) | (2) | (3) | (4) |
|---|---|---|---|---|
| NCSKEW | DUVOL | COUNT | CRASH | |
| Panel A. Regression analysis with client firm fixed effect | ||||
| LP_QUALITY | −0.146** (0.063) | −0.081** (0.037) | −0.817*** (0.264) | −0.200* (0.114) |
| RP_QUALITY | −0.111** (0.050) | −0.051** (0.024) | −0.433** (0.188) | −0.295* (0.164) |
| C and control variables | Yes | Yes | Yes | Yes |
| Year FE | Yes | Yes | Yes | Yes |
| Industry FE | No | No | No | No |
| Client firm FE | Yes | Yes | Yes | Yes |
| Audit firm FE | No | No | No | No |
| N | 2,898 | 2,898 | 2,898 | 2,898 |
| Within-R2 | 0.224 | 0.021 | 0.085 | |
| Between-R2 | 0.034 | 0.014 | 0.001 | |
| Overall-R2 | 0.200 | 0.020 | 0.070 | |
| Pseudo R2 | 0.065 | |||
| F | 20.180*** | 1.563** | 6.465*** | |
| LR Chi2 | 237.150*** | |||
| Panel B. Regression analysis with audit firm fixed effect | ||||
| LP_QUALITY | −0.140** (0.061) | −0.066** (0.030) | −0.791*** (0.264) | −0.194* (0.108) |
| RP_QUALITY | −0.108** (0.049) | 0.059* (0.034) | −0.602** (0.262) | −0.169* (0.094) |
| C and control variables | Yes | Yes | Yes | Yes |
| Year FE | Yes | Yes | Yes | Yes |
| Industry FE | Yes | Yes | Yes | Yes |
| Client firm FE | No | No | No | No |
| Audit firm FE | Yes | Yes | Yes | Yes |
| N | 2,898 | 2,898 | 2,898 | 2,898 |
| Within-R2 | 0.154 | 0.019 | 0.055 | |
| Between-R2 | 0.043 | 0.011 | 0.001 | |
| Overall-R2 | 0.131 | 0.016 | 0.041 | |
| Pseudo R2 | 0.046 | |||
| F | 19.480*** | 1.550** | 6.217*** | |
| LR Chi2 | 147.450*** | |||
| Variables | (1) | (2) | (3) | (4) |
|---|---|---|---|---|
| Yes | Yes | Yes | Yes | |
| Year | Yes | Yes | Yes | Yes |
| Industry | No | No | No | No |
| Client firm | Yes | Yes | Yes | Yes |
| Audit firm | No | No | No | No |
| 2,898 | 2,898 | 2,898 | 2,898 | |
| Within- | 0.224 | 0.021 | 0.085 | |
| Between- | 0.034 | 0.014 | 0.001 | |
| Overall- | 0.200 | 0.020 | 0.070 | |
| Pseudo | 0.065 | |||
| F | 20.180*** | 1.563** | 6.465*** | |
| 237.150*** | ||||
| Yes | Yes | Yes | Yes | |
| Year | Yes | Yes | Yes | Yes |
| Industry | Yes | Yes | Yes | Yes |
| Client firm | No | No | No | No |
| Audit firm | Yes | Yes | Yes | Yes |
| 2,898 | 2,898 | 2,898 | 2,898 | |
| Within- | 0.154 | 0.019 | 0.055 | |
| Between- | 0.043 | 0.011 | 0.001 | |
| Overall- | 0.131 | 0.016 | 0.041 | |
| Pseudo | 0.046 | |||
| F | 19.480*** | 1.550** | 6.217*** | |
| 147.450*** | ||||
This table reports regressions controlling for unobserved heterogeneity through client-firm (Panel A) and audit-firm (Panel B) fixed effects. Coefficients for LP_QUALITY and RP_QUALITY are highlighted and bolded to show their consistent negative association with crash risk. Models include all control variables and year fixed effects. Standard errors are reported in parentheses. Statistically significant coefficients are shown in italics for ease of reference. *, ** and *** denote statistical significance at the 10, 5 and 1% levels, respectively
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