UvA-DARE (Digital Academic Repository)
The added value of auditing in a non-mandatory environment
Duits, H.B.
Publication date
2012
Link to publication
Citation for published version (APA):
Duits, H. B. (2012). The added value of auditing in a non-mandatory environment.
Vossiuspers - Amsterdam University Press.
http://en.aup.nl/books/9789056297114-the-added-value-of-auditing-in-a-non-mandatory-environment.html
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Contents
1 Introduction 11
1.1 Preface 11
1.2 Research subject 14
1.3 Research objective and research question 17
1.4 Methodology 19
1.5 Structure of the study 19
2 The demand for audit – evolution of a theory
21
2.1 Introduction 21
2.2 How agency theory became the paradigm in explaining
the demand for audit 22
2.2.1 The search for a theory for the demand for audit 22 2.2.2 Agency theory and the theory of the firm 24 2.2.3 The agency theory framework explaining the
demand for audit 27
2.2.3.1 Overview of empirical studies using
Demand for Audit as dependent variable 27 2.2.3.2 Overview of empirical studies using
Demand for Audit as independent variable 30
2.2.3.3 Concluding remarks 31
2.3 Criticism brought forward against the paradigm: agency theory
32
2.3.1 The view of the firm as a nexus of contracts 33 2.3.2 Rational Expectations 34 2.3.3 Self-interested utility-maximizing motivation of
individual actors 37
2.3.4 Dominant shareholder view 38
2.4 Implications for theory-developing regarding the
demand for audit 40
2.4.1 Introduction 40
2.4.2 View of the firm as an institution in society 41 2.4.3 Decision making process of the agent 43 2.4.4 Towards a post-modern agency theory, explaining
the demand for audit? 46
3 Study into variables explaining the demand for audit,
hypotheses development and research model
51
3.1 Introduction 51
3.2 Overview of previous empirical research into variables
explaining the demand for audit 52
3.2.1 External agency relationships 52
3.2.1.1 Shareholder (owner) – manager
relationship 52
3.2.1.2 Existence of debt in the capital structure
of the firm 54
3.2.1.3 Size 58
3.2.2 Internal agency relationships 59 3.2.3 Other considerations for the demand for audit 63
3.3 Hypotheses development and Research model 65
3.3.1 Chronological overview of variables used in empirical demand for audit studies and
hypotheses development 65 3.3.2 Research model of this study 70
4 Data
description
71
4.1 Introduction 71
4.2 Auditing in the Netherlands 71
4.2.1 Historical development of the audit profession 72
4.2.1.1 The early focus on the development of a
theory of auditing and audit education 73 4.2.1.2 Cultural differences and legal system 74
4.2.2 Audit regulation 77 4.2.3 Summary 80 4.3 Data selection 81 4.3.1 Introduction 81 4.3.2 Sample selection 82 4.3.3 Data collection 83 4.3.3.1 Methodology 83
4.3.3.2 Collection of the survey data and
response rate 85
4.3.4 Description of the variables in this study 87
5 Empirical results I – Individual hypotheses
93
5.1 Introduction 93
5.2 External agency relationships 95
5.2.1 Shareholder (owner) – manager relationship 95
5.2.1.1 The position of shareholders to the
company 95
5.2.1.2 The proportion of management’s share in
the equity of the company 99
5.2.1.3 Perception of management of
shareholder’s need 100
5.2.2 Existence of debt in capital structure of the
company 102
5.2.2.1 Enhancing credibility to external users 102
5.2.2.2 Leverage 103
5.2.2.3 Debt covenants / Lending requirements 104 5.2.2.4 Cost of debt capital and lending
conditions 105
5.2.3 Size 107
5.3 Internal agency relationships 109
5.3.1 Loss of control 110
5.3.2 Existence of outside directors 110 5.3.3 Audit as a substitute for internal control 111 5.3.4 Improvement of quality of financial statements 113
5.4 Other considerations 114
5.4.1 Auditor relationship 114
5.4.2 Financial health 117
5.4.3 Strategic reasons 118
5.5 Summary of the individual hypotheses 119
5.6 Concluding remarks 122
6 Empirical results II – Regression analyses
129
6.1 Introduction 129
6.2 Preliminary analyses 130
6.2.1 Correlation and multi-collinearity 130 6.2.2 Parsimonious tests 133 6.2.3 Size as control variable 136
6.3 Logistic regression model 138
6.3.1 Introduction 138
6.4 Additional analysis on the relationship between
(economic) facts and perception 146 6.5 Comparative analysis 150
7 Conclusions and discussion
157
7.1 Introduction 157
7.2 Summary and overall conclusions 158
7.3 Discussion 162
7.3.1 Implications for the research regarding the
demand for audit 162
7.3.2 Practical implications for current audit practice 165
7.4 Limitations of this study 166
7.5 Further research 167
Appendices
I Questionnaire 170
II Results of Mann-Whitney Test for non response bias 175 III Multi collinearity: Tolerance and VIF tests 176 IV Treatment of missing values 182 V SPSS output full logistic regression model (table 6.7) 186 VI Results of Mann-Whitney Test for filing classification
bias 188
