Observations with total assets equal to $0 (or missing) or with missing industry information are excluded. Furthermore, we exclude client-firms with two or more auditors identified for a given year (identified as We also exclude “joint audits”). observations for which it is impossible to identify if an auditor change has occurred. The test sample consists of 7,416 observations from 83 different U.S. local markets (301 market-years), split equally between Big-4 and Non-Big-4 audits (Table 1). INSERT TABLE 1 HERE. Table 1 presents the descriptive statistics, where audit engagements are grouped by auditor type and market size category, pooled across all years. Engagement specific control variables are generally constant across all market size categories. This is supported by the pair-wise correlations reported in Table 2. Pair-wise correlations between and engagement specific control variables are all 0.06 and -0.048 LNGDP (except which is still relatively low at -0.139). As expected, however, market BIG4 specific control variables and are correlated with market size. The LNSAL LNBIG4 correlation between and is especially high (0.63). Audit fees appear to LNSAL LNGDP increase somewhat in market size, most probably driven by (i.e., the local price of LNSAL labour). This suggests that eq. (10) is susceptible to multicollinearity. Noteworthy are the differences between client-firms audited by Big 4 auditors and those audited by non-Big 4 auditors. The data confirms that Big 4 auditors audit larger and more complex client-firms (LNTA and They also audit relatively more profitable NBS). and less risky client-firms that report net losses less often (LOSS), have larger (ROA) and are less leveraged (LEV). Not surprisingly, non-Big 4 auditors issue more going concern opinions on average than Big 4 auditors (CONCERN: 42% 8%) vs. as a result. Big 4 auditors also provide relatively more NAS to their clients (NAS) and audit more client-firms with December-January year-end (BUSY). for non-Big NEWAUD 4 auditors is over three times higher than for Big 4 auditors. This coincides with the increase number of auditor switches by small and medium companies from a Big 4 audit firm to a smaller-tier auditor following the passage of SOX.
Observations with total assets equal to $0 (or missing) or with missing industry information are excluded. Furthermore, we exclude client-firms with two or more auditors identified for a given year (identified as “joint audits”). We also exclude observations for which it is impossible to identify if an auditor change has occurred. The test sample consists of 7,416 observations from 83 different U.S. local markets (301 market-years), split equally between Big-4 and Non-Big-4 audits (Table 1). INSERT TABLE 1 HERE. Table 1 presents the descriptive statistics, where audit engagements are grouped by auditor type and market size category, pooled across all years. Engagement specific control variables are generally constant across all market size categories. This is supported by the pair-wise correlations reported in Table 2. Pair-wise correlations between LNGDP and engagement specific control variables are all 0.06 and -0.048 (except BIG4 which is still relatively low at -0.139). As expected, however, market specific control variables LNSAL and LNBIG4 are correlated with market size. The correlation between LNSAL and LNGDP is especially high (0.63). Audit fees appear to increase somewhat in market size, most probably driven by LNSAL (i.e., the local price of labour). This suggests that eq. (10) is susceptible to multicollinearity. Noteworthy are the differences between client-firms audited by Big 4 auditors and those audited by non-Big 4 auditors. The data confirms that Big 4 auditors audit larger and more complex client-firms (LNTA and NBS). They also audit relatively more profitable and less risky client-firms that report net losses less often (LOSS), have larger (ROA) and are less leveraged (LEV). Not surprisingly, non-Big 4 auditors issue more going concern opinions on average than Big 4 auditors (CONCERN: 42% vs. 8%) as a result. Big 4 auditors also provide relatively more NAS to their clients (NAS) and audit more client-firms with December-January year-end (BUSY). NEWAUD for non-Big 4 auditors is over three times higher than for Big 4 auditors. This coincides with the increase number of auditor switches by small and medium companies from a Big 4 audit firm to a smaller-tier auditor following the passage of SOX.