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|Title: ||Relationship-specific investment, accounting conservatism, auditor choice and audit fees : the effect of customers and suppliers|
|Other Titles: ||Guan xi zhuan you xing tou zi, kuai ji wen jian xing, shen ji xuan ze ji shen ji shou fei : ke hu ji gong ying shang de ying xiang|
關係專有性投資, 會計穩健性, 審計選擇及審計收費 : 客戶及供應商的影響
|Authors: ||Yao, Yiwei (姚易偉)|
|Department: ||Department of Accountancy|
|Degree: ||Doctor of Philosophy|
|Issue Date: ||2009|
|Publisher: ||City University of Hong Kong|
|Subjects: ||Accounting -- Management.|
Auditors -- Fees.
|Notes: ||CityU Call Number: HF5636 .Y36 2009|
iii, 97 leaves 30 cm.
Thesis (Ph.D.)--City University of Hong Kong, 2009.
Includes bibliographical references (leaves 70-75)
|Abstract: ||This study tries to explain accounting practice using transaction cost economics
(TCE) method. Specifically, I investigate how specificity, which is one of the three
most important attributes for characterizing transactions (Williamson, 1985) can
affect accounting conservatism, auditor choice and audit fees in a setting when
customers/suppliers as stakeholders of the firm are included. Although, in the past,
ample evidence was provided in economics, finance and marketing trying to explain
how governance structure will be influenced by transaction cost. However,
‘Compared to the more extensive treatment in economics and marketing, there are
far fewer direct applications of TCE logic to empirical phenomena in accounting.
This relative dearth of TCE research is somewhat surprising, given the apparent
relevance of accounting phenomena to questions of economic organization and
performance. (Marcher and Richman, 2008)’.
On the other hand, while prior accounting researches try to explain and predict
accounting choice within the explicit contracts between the firm and shareholders,
debt-holders, government, and regulators, little attention has been given to the
implicit relationship between the firm and its customers/suppliers. According to the
theory of accounting, accounting practice is shaped by a set of explicit contracts
between the firm and the shareholders, debt-holders, government, employees, and
regulators, as well as implicit claims with its customers and supplies (Sunder, 1997).
So far, without considering the effect of customers/suppliers, our understanding of
accounting is limited and incomplete. This study aims to address these two
limitations with two parts on accounting conservatism and auditing respectively.
The first part of the dissertation investigates whether a firm’s conservative accounting practice is associated with relationship-specific (RS) investment of its
customers/suppliers, the value of which by definition depends upon the future
prospects of the firm. Customers/suppliers with RS investment have an asymmetric
loss function between overinvestment and underinvestment because of the lack of
alternative use of such assets. They hence have an asymmetric demand for timely
loss versus gain recognition. Accounting conservatism plays a governance role in
this situation through the timelier reporting of bad news than good news. Using
asymmetric timeliness and customers/suppliers’ research and development intensity
as major proxies for accounting conservatism and RS investment, respectively, I find
that at both the industry and firm level a firm’s accounting conservatism is positively
associated with the RS investment of its customers/suppliers after controlling for the
other conservatism divers and the potential endogenous problem. Further, this
relationship is weaker when vertical integration (an alternative bonding mechanism)
exists between the firm and its customers/suppliers, the market concentration of the
firm’s customers/suppliers is low, or when the firm has a long-term relationship with
its customers and suppliers.
The second part examines whether customers/suppliers’ RS investment can
create a demand for high quality audit services as either a bonding or signaling
mechanism to reduce the agency cost associated with RS investment and whether a
fee premium is charged accordingly to compensate the incremental fraud risk
associated with the RS investment or due to the limited spillover of the specific
knowledge investment made by the auditor. Employing R&D intensity of
customers/suppliers (Industries) and auditor’s brand name (big vs. non-big) as
proxies for customers/suppliers’ RS investment and audit quality respectively, After
controlling for other confounding factors, I find on industry and firm level, firms with high customers/suppliers’ RS investment are more likely to choose high-quality
auditors and pay more audit fees.|
|Online Catalog Link: ||http://lib.cityu.edu.hk/record=b2340588|
|Appears in Collections:||AC - Doctor of Philosophy|
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