In this paper, we apply the multinomial logit regression and decision tree approaches to examine the critical deciding factors that affect auditor choice decisions. We first examine the relationship between the auditor choice and firm specific factors. In order to get deeper insights about the association between auditor choice and firm’s characteristics, this paper employs the decision tree ap...

This study examines relation of the auditor choice and cost of debt financing for private SMEs (small and medium sized enterprises). In particular, it examines whether choice of a certified auditor or reputable international audit firm provides economic value to private SMEs as a factor lowering firms' information problems and cost of debt financing in the capital markets. Using time-series cro...

Auditor selection can be regarded as a matter of audit quality. Research studies aiming to model the auditor choice employ statistical techniques. Here we employ three techniques derived from the Data Mining domain to build models capable of discriminating cases where companies choose a Big 4 or a Non-Big 4 auditor. Significant factors associated with the auditor choice are revealed. The three ...

Prior research has examined audit pricing for publicly held firms and provided some evidence of a Big 8 premium in pricing. We investigate audit pricing among private firms for the first time, and we compare audit pricing for private and listed clients. The relatively great degree of dispersion in auditor choice (between Big 5 and non-Big 5 auditors) in our large sample of privately held audit ...

The selection of a proper auditor is driven by several factors. Here, we use three data mining classification techniques to predict the auditor choice. The methods used are Decision Trees, Neural Networks and Support Vector Machines. The developed models are compared in term of their performances. The wrapper feature selection technique is used for the Decision Tree model. Two models reveal tha...

We investigate the effectiveness of proportionate liability in reducing the probability of fraud and audit risk relative to joint and several liability in two strategic audit settings: one that provides conclusive evidence of fraud and one that provides inconclusive evidence of fraud. In both settings the auditor makes an audit effort choice, but in the second setting the auditor also evaluates...

Our study investigates the causal relationship between managerial litigation risk and auditor choice decisions. Exploiting staggered adoption of universal demand (UD) laws at state level in United States, we use a stacked regression approach find lower propensity for affected firms to switch higher-quality auditors after exogenous reduction risk. This result supports entrenchment hypothesis tha...