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dc.contributor.author
Katichoritis, Ioannis
en
dc.date.accessioned
2017-01-31T07:34:56Z
dc.date.available
2017-02-01T01:00:17Z
dc.date.issued
2017-01-31
dc.identifier.uri
https://repository.ihu.edu.gr//xmlui/handle/11544/15066
dc.rights
Default License
dc.subject
Agency Theory
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dc.subject
Audit Fees
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dc.subject
US Banking Sector
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dc.subject
Probability of Default
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dc.subject
Credit Scoring Model
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dc.title
The Impact of Probability of Default of Banks on Audit Pricing: Evidence from the US Banking Sector
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heal.type
masterThesis
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heal.secondaryTitle
Evidence from the US Banking Sector
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heal.classification
Auditing
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heal.classification
Banking
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heal.keywordURI.LCSH
Auditors--United States --Fees
heal.keywordURI.LCSH
Banks and banking--United States
heal.keywordURI.LCSH
Banks and banking--United States--Accounting
heal.keywordURI.LCSH
Auditing--United States--Evaluation
heal.keywordURI.LCSH
Default (Finance)
heal.keywordURI.LCSH
Default (Finance)--United States
heal.keywordURI.LCSH
Credit analysis--United States
heal.language
en
el
heal.access
free
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heal.license
http://creativecommons.org/licenses/by-nc/4.0
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heal.references
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Managerial Auditing Journal, 25 (2), 122 - 139.  Charitou, S., (2015), “Factors Affecting the Probability of Default of US Banks: An Empirical Analysis”. Working Paper, London School of Economics  Choi, J.H., Kim, J.B., Liu, X. and Simunic, D.A., (2008). “Audit pricing, legal liability regimes and Big-4 premiums: theory and cross-country evidence”. Contemporary Accounting Research, 25 (1), pp. 55 - 99.  DeAngelo, L.E. (1981), "Auditor Independence, 'Low Balling', and Disclosure Regulation", Journal of Accounting and Economics, 3, pp. 113 - 127.  DeFond, M. and Zhang, J., (2014). “A review of archival auditing research”. Journal of Accounting and Economics, 58 (2-3), pp. 275 - 326.  Ebrahim, A., (2010). “Audit fee premium and auditor change: the effect of Sarbanes-Oxley Act”. Managerial Auditing Journal, 25 (2), pp. 102 - 121.  Engelmann, B., Rauhmeier, R., (2006). “The Basel II Risk Parameters”. Springer Verlag.  Federal Deposit Insurance Corporation (FDIC), (2015). https://www.fdic.gov/bank/  Fields, E., Donald, F. & Williams, M., (2004). “An investigation of pricing of audit services for financial institutions”. Journal of Accounting and Public Policy, 23 (6), pp. 53 - 77. The Impact of Probability of Default of Banks on Audit Pricing 36  Fleming, G., Heaney, R., & McCosker, R., (2005). “Agency costs and ownership structure in Australia”. Pacific-Basin Finance Journal, 13 (1), pp. 29 - 52.  Fox, M. A., & Hamilton, R. T., (1994). “Ownership and Diversification: Agency Theory or Stewardship Theory”. Journal of Management Studies, 31 (1), pp. 69 - 81.  Francis, J.R. and Wilson, E.R., (1988). “Auditor changes: a joint test of theories relating to agency costs and auditor differentiation”. The Accounting Review, 63 (3), pp. 663 - 682.  Francis, J.R. and Wilson, E.R., (1988). “Auditor changes: a joint test of theories relating to agency costs and auditor differentiation”. 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Prague Economic Papers, No. 2.  Hackenbrack, K. & Knechel, W.R., (1997). “Resource allocation decisions in audit engagements”. Contemporary Accounting Research, 14, pp. 481 - 499.  Hay, D. C., Knechel, W. R., & Wong, N., (2006). “Audit Fees: A Meta-analysis of the Effect of Supply and Demand Attributes”. Contemporary Accounting Research, 23 (1), pp. 141 - 191.  Hernandez, M., (2012). “Toward an Understanding of the Psychology of Stewardship”. Academy of Management Review, 37 (2), pp. 172 - 193.  Ittonen, K., (2010). “A Theoretical examination of the role of auditing and the relevance of audit reports”. VaasanYliopistonJulkaisuja, Proc. of the University of Vaasa, Teaching Aid Series. pp. 1 - 70. The Impact of Probability of Default of Banks on Audit Pricing 37  Jensen, M.C. and Meckling, W.H., (1976). “Theory of the firm: managerial behavior, agency costs and ownership structure”. Journal of Financial Economics. 3 (4), pp. 305 - 360.  Jin, J.Y., Kanagaretnam, K. and Lobo, G.J., (2011). “Ability of Accounting and Audit Quality Variables to Predict Bank Failure during the Financial Crisis”. Journal of Banking and Finance, 35 (11), pp. 2811 - 2819.  Knechel, R.W., Naiker, V. and Pacheco, G., (2007). “Does auditor industry specialization matter? Evidence from market reaction to auditor switches”. Auditing: A Journal of Practices and Theory, 26 (1), pp. 19 - 45.  Maletta, M. J., (1993). “An Examination of Auditors’ Decisions to Use Internal Auditors as Assistants: The Effect of Inherent Risk”. Contemporary Accounting Research, 9(2), pp. 508 - 525.  Mayes, D. and Stremmel, H., (2014). “The effectiveness of Capital Adequacy Measures in Predicting Bank Distress”. SUERF – The European Money and Finance Forum. Vienna  Menon, K. and Williams, D.D., (2001). “Long – term trends in audit fees”. Auditing: A Journal of Practice and Theory, 20 (1), pp. 115 - 136.  Mitnick, B. M., (1973). “Fiduciary Rationality and Public Policy: The Theory of Agency and Some Consequences”. New Orleans, LA. IMU Serials.  Monsuru, F., (2014). “Audit Pricing in Nigerian Banking Industry: A Panel Analysis (2008-2012)”. IOSR Journal of Economics and Finance, 2 (6), pp. 26 - 34.  Nyberg, A. J., Fulmer, I. S., Gerhart, B., & Carpenter, M. A., (2010). “Agency Theory Revisited: Ceo Return and Shareholder Interest Alignment”. Academy of Management Journal, 53 (5), pp. 1029 - 1049.  Palmrose, Z., (1986). “Audit fees and auditor size: Further evidence”. Journal of Accounting Research, 11, pp. 97 - 110.  Resti, A., Sironi, A., (2007). “Risk Management and Shareholders’ Value in Banking”. Chichester: Wiley.  Ross, S. A., (1973). “The Economic Theory of Agency: The Principal’s Problem”. The American Economic Review, 63 (2), pp. 134 - 139.  Simon D. and Taylor M., (2002). “A Survey of Audit Pricing in Ireland”. International Journal of Auditing. 6 (1), pp. 1 - 12. The Impact of Probability of Default of Banks on Audit Pricing 38  Simon, D. T. & Francis, J. R., (1988). “A Test of Auditor Pricing in the Small Client Segment of the US Audit Market”. Accounting Review, 62, pp. 145 - 157.  Simon, D. T., (1995). “The Market for Audit Services in South Africa”. The International Journal of Accounting, 30 (4), pp. 356 - 365.  Simunic, D. A. & Stein, M. T., (1996). “The impact of litigation risk on audit pricing: a review of the economics and the evidence”. A Journal of Practice & Theory, 15, pp. 120 - 134.  Simunic, D. A., (1980). “The Pricing of Audit Services: Theory and Evidence Journal of Accounting”. Journal of Accounting Research, 18, pp. 161 - 190.  Simunic, D. and Stein, M., (1996). “The impact of litigation risk on audit pricing: A review of the economics and the evidence”. Auditing: A Journal of Practice and Theory, 15 (1), pp. 119 - 134.  Skinner, D.J and Srinivasan, S., (2012). “Audit quality and auditor reputation: Evidence from Japan”. The Accounting Review, 87 (5), pp. 1737 - 1765.  Statements on Auditing Standards 106, (2006). “Audit evidence”. American Institute of Certified Public Accountants Auditing Standards Board.  Statements on Auditing Standards 47, (1983). “Audit risk and materiality in conducting an audit”. American Institute of Certified Public Accountants Auditing Standards Board.  Stice, J., (1991). “Using financial and market information to identify pre-engagement factors associated with lawsuits against auditors”. The Accounting Review, 66, pp. 516 - 33.  Swanson, K., (2008). “The determinants of audit prices for financial services institutions in the United States”. Major Themes in Economics.  Taylor, M. H. & Simon, D. T., (1999). “Determinants of Audit Fees: The Importance of Litigation, Disclosure, and Regulatory Burdens in Audit Engagements in 20 Countries”. The International Journal of Accounting, 34 (3), pp. 375 - 388.  Wallace, W., (1980). “The economic role of the audit in free and regulated markets”. The Touche Ross and Co. Aid to Education Program. (Reprinted in Auditing Monographs, New York Macmillan Publishing Co., 1985).  Wang, Q., Wong, T.J. and Xia, L., (2008). “State ownership, the institutional environment, and auditor choice: Evidence from China”. Journal of Accounting and Economics, 46, pp. 112 - 134. The Impact of Probability of Default of Banks on Audit Pricing 39  Waresul, K.A. and Moizer, P., (1996). “Determinants of Audit Fees in Bangladesh”. International Journal of Accounting, 31 (4), pp. 497 - 509.  Weber, J., Willenborg, M. and Zhang, J., (2008). “Does auditor reputation matter? The case of KPMG Germany and ComROAD AG”. Journal of Accounting Research, 46 (4), pp. 941 - 972.  Zerni, M., (2012). “Audit Partner Specialization and Audit Fees: Some Evidence from Sweden”. Contemporary Accounting Research, 29 (1), pp. 312 - 340.
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heal.fileFormat
pdf
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heal.recordProvider
School of Economics, Business Administration and Legal Studies, MSc in Banking and Finance
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heal.publicationDate
2016-11-18
heal.abstract
This dissertation thesis examines the determinants of audit fees charged on US banks and especially the impact of probability of default of banks on them, by creating a balanced panel set of data, comprising by 122 US banks for a period of thirteen years (2003-2015). In addition, the set is divided into two sub-periods, the pre-crisis period (2003 – 2007) and the post-crisis period (2008 – 2015). The objective of this study is firstly to check if insolvency status of a bank can affect the audit pricing and secondly to examine the world’s financial crisis effect on banks’ audit pricing, by using agency theory and information asymmetry theory as theoretical framework. More specifically, in this analysis, are employed bank-specific variables, such as the probability of default of banks that has not been examined by previous studies, along with the most commonly used auditee and auditor specific characteristics. Results show that the variables being under examination, have the expected effect on audit pricing, besides some exceptions and differentiations between the two sub-periods due to the financial crisis effect. A negative correlation between the relationship of banks’ profitability and audit engagement characteristic risk with the audit fees is indicated. All the rest variables indicate a positive correlation between them and the fees charged. Furthermore, differences on what the auditors considered more significant for pricing the auditing act before and after the crisis are observed. Regarding the insolvency status of bank seems to differentiate before and after the crisis and during the period of 2003 to 2015 there is a statistically significant effect, although it can be considered as weak.
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heal.tableOfContents
PREFACE ................................................................................................................................................. i ABSTRACT...............................................................................................................................................ii ACKNOWLEDGEMENTS .......................................................................................................................... iii 1. INTRODUCTION .............................................................................................................................. 1 2. THEORETICAL FRAMEWORK .......................................................................................................... 5 2.1. Agency Theory .........................................................................................................................5 2.2. Information Asymmetry ...........................................................................................................7 2.3. Monitoring Mechanism & Costs ..............................................................................................7 2.4. Demand for Auditing in Banking Industry................................................................................8 2.5. Audit Fees Determinants .........................................................................................................9 2.5.1. Client Specific ............................................................................................................... 10 2.5.2. Auditor Specific ............................................................................................................ 11 2.5.3. Engagement Characteristic Risks .................................................................................. 12 2.5.4. Financial Distress of the Bank (Insolvency) .................................................................. 13 3. HYPOTHESIS DEVELOPMENT ....................................................................................................... 14 4. RESEARCH METHOD..................................................................................................................... 15 4.1. Overall Research Design ....................................................................................................... 15 4.1.1. Control Variable............................................................................................................ 16 4.2. Data Collection and Sample Selection .................................................................................. 18 4.3. Measurement ....................................................................................................................... 18 4.3.1. Explained Variable ........................................................................................................ 19 4.3.2. Explanatory Variables ................................................................................................... 19 4.4. Model Specification .............................................................................................................. 21 5. EMPIRICAL RESULTS AND DISCUSSION ....................................................................................... 23 5.1. Descriptive Statistics ............................................................................................................. 23 5.2. Correlations.......................................................................................................................... 26 5.3. Causality Testing ................................................................................................................... 27 5.4. Regression Analysis ............................................................................................................... 28 6. CONCLUDING REMARKS .............................................................................................................. 33 6.1. Conclusions ........................................................................................................................... 33 6.2. Limitations ............................................................................................................................ 34 6.3. Suggestions ........................................................................................................................... 34 REFERENCES ........................................................................................................................................ 35 APPENDIX ............................................................................................................................................... I
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heal.advisorName
Leventis, Stergios
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heal.committeeMemberName
Grose, Christos
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heal.committeeMemberName
Sikalidis, Alexandros
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heal.academicPublisher
IHU
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heal.academicPublisherID
ihu
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heal.numberOfPages
60
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heal.spatialCoverage
USA
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heal.temporalCoverage
2003 - 2015
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