| Summary: | 博士 === 逢甲大學 === 商學博士學位學程 === 103 === Audit fee research has helped us to understand the relationship between unobserved audit effort and factors such as incentive conflicts, risk and complexity, and auditor reputation. In much of this work, it is assumed that large auditors should charge a premium for their services because they offer higher quality. This study reexamines the audit premium using a Heckman endogenous switching model derived from a sample of 2,993 property-liability insurers filing required Annual Statements in years 2006 and 2007. A first stage auditor choice regression (Big N vs. Non-Big N) is followed by a second stage model of the audit fee, with separate equations for Big N and Non-Big N clients. The results indicate that self-selection has a significant impact on the audit fee. Furthermore, the audit market is sharply differentiated on client characteristics. Publicly listed insurers favor large auditors, while mutually owned insurers prefer smaller auditors. The clients of large auditors are characterized by size and several insurance-specific measures of risk and complexity, while the clients of small auditors are characterized by a lack of those features. Furthermore, auditors profit from their clients’ preferences. The factors that contribute the most to the audit fee are those that led the insurer to choose the auditor in the first place.
The Heckman methodology calls for special measures of an independent variable’s impact effect on the audit fee. We present several formulae for assessing the marginal effect of a single variable and the interaction effect of the product of two variables. Using these formulae, we show that both auditors and clients engage in opportunistic behavior. When anticipating an upcoming financial examination, a distressed insurer will favor a Non-Big N auditor. Furthermore, the event of an impending examination, the audit fee increases, regardless of the client’s financial condition.
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