Variable definitions
| Dependent variables used in audit fees and hours analysis (Source: annual shareholder meeting minutes) | |
| LAF | = natural logarithm of total audit fees for the audit of consolidated financial statements and separate audits of the financial statements of the parent and the subsidiaries (winsorized at the 1st and 99th percentiles) |
| LAH | = natural logarithm of audit hours for the audit of consolidated financial statements (winsorized at the 1st and 99th percentiles) |
| Expertise variables [source: Compustat Global (total sales and GICS), Eurostat (area), and annual shareholder meeting minutes (audit firm and location)] | |
| National industry specialist | The audit firm with the largest market share (client total sales) by two-digit GICS and year |
| Area industry specialist | The audit firm with the largest market share (client total sales) by two-digit GICS, area and year. There are two areas: North and Center-South |
| City industry specialist | The audit firm with the largest market share (client total sales) by two-digit GICS, city and year. There are 20 cities, based on the 20 regions, in Italy: North (Valle d’Aosta, Veneto, Trentino Alto Adige, Friuli Venezia Giulia, Emilia Romagna, Lombardia, Liguria, Piemonte), Center (Lazio, Toscana, Umbria, Marche) and South (Abruzzo, Molise, Campania, Basilicata, Puglia, Calabria, Sicilia, Sardegna). |
| Control variables (winsorized at the 1st and 99th percentiles) (source: Compustat Global, except as indicated) | |
| SIZE | = the natural logarithm of total assets at the end of the fiscal year |
| σ (CFO) | = the standard deviation of operating cash flow scaled by total assets at the beginning of the fiscal year |
| LEV | = total long-term debt scaled by total assets at the end of the fiscal year |
| LOSS | = 1 if net income < 0, and 0 otherwise |
| SALES GROWTH | = (revenuet – revenuet−1)/revenuet−1 for the fiscal year ended |
| TENURE | = tenure of the audit firm (minimum of one year and maximum of nine years) (source: annual shareholder meeting minutes) |
| ACCR 1 | = signed value of total accrual in year t − 1 scaled by total assets at the end of t − 1 (in logarithm in the audit fees and hours models) |
| BIGN | = 1 if audited by a Big N auditor, and 0 otherwise (source: annual shareholder meeting minutes) |
| CATA | = ratio of current assets to total assets; |
| LABOR_COST | = cost of labor from Italian Statistical Institution (ISTAT) database |
| QUICK | = ratio of current assets (less inventories) to current liabilities |
| ROA | = ratio of earnings before interest and tax to total assets |
| UNCLEAN OPINION | = 1 if the audit opinion in not unqualified (additional language, qualified, adverse, or no opinion) and 0 if unqualified |
| Dependent variables used in audit fees and hours analysis ( | |
| = natural logarithm of total audit fees for the audit of consolidated financial statements and separate audits of the financial statements of the parent and the subsidiaries (winsorized at the 1st and 99th percentiles) | |
| = natural logarithm of audit hours for the audit of consolidated financial statements (winsorized at the 1st and 99th percentiles) | |
| Expertise variables [ | |
| The audit firm with the largest market share (client total sales) by two-digit GICS and year | |
| The audit firm with the largest market share (client total sales) by two-digit GICS, area and year. There are two areas: North and Center-South | |
| The audit firm with the largest market share (client total sales) by two-digit GICS, city and year. There are 20 cities, based on the 20 regions, in Italy: North (Valle d’Aosta, Veneto, Trentino Alto Adige, Friuli Venezia Giulia, Emilia Romagna, Lombardia, Liguria, Piemonte), Center (Lazio, Toscana, Umbria, Marche) and South (Abruzzo, Molise, Campania, Basilicata, Puglia, Calabria, Sicilia, Sardegna). | |
| Control variables (winsorized at the 1st and 99th percentiles) ( | |
| = the natural logarithm of total assets at the end of the fiscal year | |
| = the standard deviation of operating cash flow scaled by total assets at the beginning of the fiscal year | |
| = total long-term debt scaled by total assets at the end of the fiscal year | |
| = 1 if net income < 0, and 0 otherwise | |
| = (revenue | |
| = tenure of the audit firm (minimum of one year and maximum of nine years) ( | |
| = signed value of total accrual in year | |
| = 1 if audited by a Big N auditor, and 0 otherwise ( | |
| = ratio of current assets to total assets; | |
| = cost of labor from Italian Statistical Institution (ISTAT) database | |
| = ratio of current assets (less inventories) to current liabilities | |
| = ratio of earnings before interest and tax to total assets | |
| = 1 if the audit opinion in not unqualified (additional language, qualified, adverse, or no opinion) and 0 if unqualified | |
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