all the three years by an audit client are taken into consideration to assign an audit firm that the audit fees do not fluctuate much within a period. Tenure is a dummy variable, because a company can be only in one auditor tenure group. Because tenure is a dummy variable, TENURE3 is excluded from the model. Auditor tenure period 3 is the control group. Any significant findings for TENURE1 and TENURE2 indicate differences in the audit fees in the first or the second auditor tenure period compared to the audit fees in the third auditor tenure period. In addition, because industry is a dummy variable one industry group has to be removed to compare the audit fee of an industry group to the audit fee of the excluded industry group. The industry group BANK is excluded from the model by SPSS. Compared to a bank in the third auditor tenure period, the next regression model is developed: All the variables have the same descriptions and predicted signs as provided in chapter 5. This model does not have multicollinearity. Detailed information of the results of the regression including the multicollinearity test is provided in Appendix 4. Additional checks The last checks performed before starting the regression analysis are to check whether the third and the fourth conditions are met to generalize the results. The third condition is that the residuals are normally distributed. Normal distributed residuals indicate that the error term of the regression is zero . The standardized residuals were saved when running the regression in SPSS. The saved standardized residuals were tested for normality . Results show that the standardized residuals are normally distributed, with a P-value of Kolmogorov-Smirnov 0,200, and a P-value of Shapiro-Wilk 0,129. Finally, the fourth condition was checked. To test the homoscedasticity the standardized residuals as observed and predicted are plotted so it is able to check if no pattern is observed. Homoscedasticity indicates that the variance of the dependent variable is the same . It can be concluded that the homoscedasticity condition is met. Appendix 4 provides the results of both checks.
Gietzmann & Sen 2002 Effects of mandatory audit firm rotation on the auditor independence First game: 1 period with tenure period restricted by law. Second game: 2 periods with no mandatory rotation In audit markets with few large clients, mandatory audit firm rotation is beneficial. In audit markets with much large clients, mandatory audit firm rotation is too costly Lindberg & Beck 2004 CPA's perceptions on the auditor independence before and after the collapse of Enron 379 US CPA's (2001) Open ended interviews, focus groups and a survey. ANOVA After the collapse of Enron the CPA's perception of the services more negatively affects the auditor independence. After the collapse of Enron CPA's are more concerned about issues which could harm the auditor independence in appearance. After the collapse of Enron CPA’s are more conservative about issues which affect the auditor independence. Daniels & Booker 2011 Loan officers perceptions on the auditor independence and audit quality 212 loan officers between-subjects experimental design Perceived auditor independence increases in a rotation setting. Tenure does not increase the auditor independence. Perceived audit quality does not increase. Audit Quality Author(s) Year Object of study Sample Methodology Outcome Copley & Douchet 1993 Effect of auditor tenure and audit quality and audit quality and fixed fee contracts 136 audits of federal financial assistance programs in 1985 Regression model With fixed fee contracts significant more violations of professional standards exist and this effect is lower when provisions exist
Blouin et al. 2005 Examine factors involved with audit firm rotation 407 former Arthur Anderson clients in the US from Compustat Regression model Switching costs and agency benefits exist. Clients who did not follow their former AA audit teams have less discretionary accruals after the rotation. Clients, who did follow their former AA audit team, still had high levels of discretionary accruals. Audit Market Concentration Author(s) Year Object of study Sample Methodology Outcome Beattie et al. 2003 Examine the audit market concentration 2,180 Firms listed on the London stock exchange from April 2002 Time series of market share measured by number of audits and audit fees After the collapse of Arthur Anderson Big4 firms held 96% of the audit market. With AA this was 90%