Mechanisms linking non-financial misconduct to audit fees
| Variables | (1) | (2) | (3) | (4) |
|---|---|---|---|---|
| LAG | LAG | LAF | LAF | |
| Panel A: Audit effort and complexity channel | ||||
| LNPEN | 0.000 (0.454) | 0.010*** (6.028) | ||
| LNPEN × FRGN | 0.006** (2.133) | |||
| LNNUM | 0.009* (1.671) | 0.102*** (6.008) | ||
| LNNUM × FRGN | 0.069*** (2.652) | |||
| FRGN | −0.003 (−0.368) | −0.003 (−0.354) | 0.120*** (5.119) | 0.118*** (5.056) |
| Intercept | 4.335*** (64.700) | 4.338*** (65.550) | 10.408*** (51.309) | 10.460*** (57.172) |
| Control variables | Yes | Yes | Yes | Yes |
| Year and industry FE | Yes | Yes | Yes | Yes |
| N | 10,231 | 10,231 | 10,233 | 10,233 |
| Adjusted R2 | 0.314 | 0.315 | 0.794 | 0.795 |
| Panel B: Engagement risk premium channel | ||||
| Variables | (1) | (2) | (3) | (4) |
| LAF | LAF | LAF | LAF | |
| LNPEN | 0.008*** (4.390) | 0.007*** (3.613) | ||
| LNPEN × BIG4 | 0.018** (2.033) | |||
| LNPEN × AF | 0.001*** (3.471) | |||
| LNNUM | 0.084*** (3.991) | 0.078*** (3.469) | ||
| LNNUM × BIG4 | 0.220** (2.275) | |||
| LNNUM × AF | 0.005*** (2.841) | |||
| BIG4 | 0.243*** (4.766) | 0.253*** (4.937) | 0.214*** (4.318) | 0.216*** (4.329) |
| AF | 0.000 (0.185) | 0.001 (0.475) | ||
| Intercept | 10.367*** (53.565) | 10.408*** (58.981) | 10.498*** (47.632) | 10.557*** (53.993) |
| Control variables | Yes | Yes | Yes | Yes |
| Year and industry FE | Yes | Yes | Yes | Yes |
| N | 10,233 | 10,233 | 9,974 | 9,974 |
| Adjusted R2 | 0.794 | 0.795 | 0.795 | 0.796 |
| Panel C: Specialist demand and auditor switching | ||||
| (1) | (2) | (3) | (4) | |
| Variables | ToSP | ToSP | LAF | LAF |
| LNPEN | 0.157*** (3.134) | 0.011*** (7.569) | ||
| LNNUM | 1.628** (2.322) | 0.117*** (7.310) | ||
| LNPEN × ToSP | 0.025* (1.739) | |||
| LNNUM × ToSP | 0.292 (1.579) | |||
| ToSP | −0.099 (−0.744) | 0.012 (0.109) | ||
| Intercept | −0.457 (−0.156) | −0.223 (−0.074) | 10.340*** (50.213) | 10.388*** (55.245) |
| Control variables | Yes | Yes | Yes | Yes |
| Year and industry FE | Yes | Yes | Yes | Yes |
| N | 304 | 304 | 10,233 | 10,233 |
| Adjusted R2 | 0.796 | 0.797 | ||
| Pseudo R2 | 0.611 | 0.602 | ||
| Variables | (1) | (2) | (3) | (4) |
|---|---|---|---|---|
| 0.000 (0.454) | 0.010 | |||
| 0.006 | ||||
| 0.009 | 0.102 | |||
| 0.069 | ||||
| −0.003 (−0.368) | −0.003 (−0.354) | 0.120 | 0.118 | |
| Intercept | 4.335 | 4.338 | 10.408 | 10.460 |
| Control variables | Yes | Yes | Yes | Yes |
| Year and industry | Yes | Yes | Yes | Yes |
| 10,231 | 10,231 | 10,233 | 10,233 | |
| Adjusted | 0.314 | 0.315 | 0.794 | 0.795 |
| Variables | (1) | (2) | (3) | (4) |
| 0.008 | 0.007 | |||
| 0.018 | ||||
| 0.001 | ||||
| 0.084 | 0.078 | |||
| 0.220 | ||||
| 0.005 | ||||
| BIG4 | 0.243 | 0.253 | 0.214 | 0.216 |
| 0.000 (0.185) | 0.001 (0.475) | |||
| Intercept | 10.367 | 10.408 | 10.498 | 10.557 |
| Control variables | Yes | Yes | Yes | Yes |
| Year and industry | Yes | Yes | Yes | Yes |
| 10,233 | 10,233 | 9,974 | 9,974 | |
| Adjusted | 0.794 | 0.795 | 0.795 | 0.796 |
| (1) | (2) | (3) | (4) | |
| Variables | ToSP | ToSP | ||
| 0.157 | 0.011 | |||
| 1.628 | 0.117 | |||
| 0.025 | ||||
| 0.292 (1.579) | ||||
| ToSP | −0.099 (−0.744) | 0.012 (0.109) | ||
| Intercept | −0.457 (−0.156) | −0.223 (−0.074) | 10.340 | 10.388 |
| Control variables | Yes | Yes | Yes | Yes |
| Year and industry | Yes | Yes | Yes | Yes |
| 304 | 304 | 10,233 | 10,233 | |
| Adjusted | 0.796 | 0.797 | ||
| Pseudo | 0.611 | 0.602 | ||
Panel A: *, ** and *** indicate significance (two-tailed) at 0.10, 0.05 and 0.01 levels, respectively. Standard errors are robust to heteroscedasticity and clustered by firm. LNPEN × FRGN is the mean-centered interaction term measured as (LNPEN – mean value of LNPEN) × (FRGN – mean value of FRGN). LNNUM × FRGN is the mean-centered interaction term measured as (LNNUM– mean value of LNNUM) × (TURNOVER – mean value of FRGN). The control variables used in Columns 1–4 are obtained from Model 1. Panel B: *, ** and *** indicate significance (two-tailed) at 0.10, 0.05 and 0.01 levels, respectively. Standard errors are robust to heteroscedasticity and clustered by firm. LNPEN × BIG4 is the mean-centered interaction term measured as (LNPEN – mean value of LNPEN) × (BIG4 – mean value of BIG4). LNNUM × BIG4 is the mean-centered interaction term measured as (LNNUM– mean value of LNNUM) × (BIG4 – mean value of BIG4). LNPEN × AF is the mean-centered interaction term measured as (LNPEN – mean value of LNPEN) × (AF– mean value of AF). LNNUM × AF is the mean-centered interaction term measured as (LNNUM– mean value of LNNUM) × (AF – mean value of AF). The control variables used in Columns 1–4 are obtained from Model 1. Panel C: *, ** and *** indicate significance (two-tailed) at 0.10, 0.05, and 0.01 levels, respectively. Standard errors are robust to heteroscedasticity and clustered by firm. LNPEN × ToSP is the mean-centered interaction term measured as (LNPEN – mean value of LNPEN) × (ToSP – mean value of ToSP). LNNUM × ToSP is the mean-centered interaction term measured as (LNNUM– mean value of LNNUM) × (ToSP – mean value of ToSP). The control variables used in Columns 1–4 are obtained from Model 1. In Columns 1–2, control variables (i.e. LOSS, GC, MW, RESTATE, FRGN, BIG4, SP, LNTENURE, AUD_CH and CEOEXP) were omitted from the probit model because they perfectly predicted the outcome or lacked sufficient variation, which is necessary to ensure convergence and valid estimation
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