INVREC

AcronymDefinition
INVRECInventory Record
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0.01 ** 0.03 * 0.01 ** SPECIAL ITEMS + 0.32 ** 0.02 0.21 ** BOOK TO MKT - -0.01 -0.00 * -0.01 ** SEGS + 0.19 ** -0.01 ** 0.21 ** FOROPS + -0.01 -0.00 0.03 EMPLAN + 0.14 ** -0.02 * 0.12 ** INITIAL YEARS - -0.10 * -0.02 * -0.09 * MERGER + 0.28 ** 0.03 ** 0.16 ** FINANCE + 0.45 ** 0.06 ** 0.25 ** SALES GROWTH + 0.01 ** 0.01 ** 0.01 ** REPORT LAG + 0.01 ** INVREC + 0.01 VOLATILITY + 32.12 ** Adjusted [R.sup.2] .66 .27 .76 *, ** p-value <.05, <.01, respectively.
We retain the variables LOGASSETS (renamed LASSETS), SQSUBS, and INVREC. LASSETS is our measure of auditee size, which has a well-established relationship with audit fees.
where LFEE represents the log of the audit fee charged to the client, LASSETS is the log of the client's total assets, SQSUBS is the square root of the number of subsidiaries operated by the client, INVREC is the proportion of the client's assets represented in accounts receivable and inventory, MSHARE is the audit firm's market share, LEVERAGE is the proportion of the client's total debt to its total assets, and i and t are subscripts for firm and year, respectively.
Only three of the variables in the model (LASSETS, SQSUBS, and INVREC, representing auditee size, complexity, and proportion of risky assets, respectively) are significant in 1980.
Error t-value INTERCEPT -1.003 0.432 - 2.3(**) LASSETS 0.442 0.032 13.8(*) SQSUBS 0.140 0.025 5.6(*) INVREC 0.020 0.003 5.9(*) MSHARE -0.001 0.004 -0.2 LEVERAGE -0.018 0.130 -0.1 [R.sup.2] 0.854 F-value 99.5(*) (*), (**) p < 0.01, p = < 0.05, respectively, two-tailed tests.
We do not adjust INVREC, LEVERAGE, or MSHARE, all ratios or percentages, assuming that the numerator and denominator in each case would require similar adjustments.
One apparent trend is a downward drift in the coefficient for INVREC. In a later section we test to see if this trend is statistically significant.
(2.627) * INVREC (+) Inventory plus receivables .454 as a percent of total (2.870) * assets.
(2.556) * INVREC (+) Inventory plus receivables .424 as a percent of total (2.648) * assets.