Figure 1.

Figure 2.

Figure 3.

Figure 4.

Correlation Analysis Results
Variables | (1) | (2) | (3) | (4) | (5) | (6) | |
---|---|---|---|---|---|---|---|
Audit Fee (AF) (1) | Cor | 1 | 0.907** | 0.181** | 0.043 | 0.089 | 0.062 |
Sig | 0.000 | 0.002 | 0.458 | 0.126 | 0.287 | ||
N | 300 | 300 | 300 | 300 | 300 | 300 | |
Client Size (CS) (2) | Cor | 0.907** | 1 | 0.067 | 0.037 | −0.084 | 0.052 |
Sig | 0.000 | 0.250 | 0.529 | 0.148 | 0.369 | ||
N | 300 | 300 | 300 | 300 | 300 | 300 | |
Client Complexity (CC) (3) | Cor | 0.181** | 0.067 | 1 | −0.035 | −0.043 | 0.012 |
Sig | 0.002 | 0.250 | 0.545 | 0.460 | 0.842 | ||
N | 300 | 300 | 300 | 300 | 300 | 300 | |
Client Risk (CR) (4) | Cor | 0.043 | 0.037 | −0.035 | 1 | 0.138* | −0.079 |
Sig | 0.458 | 0.529 | 0.545 | 0.017 | 0.171 | ||
N | 300 | 300 | 300 | 300 | 300 | 300 | |
Audit Firm Size (‘BIG10’) (5) | Cor | 0.089 | −0.084 | −0.043 | 0.138* | 1 | −0.049 |
Sig | 0.126 | 0.148 | 0.460 | 0.017 | 0.398 | ||
N | 300 | 300 | 300 | 300 | 300 | 300 | |
Corporate Governance of Audited Firms (CGAF) (6) | Cor | 0.062 | 0.052 | 0.012 | −0.079 | −0.049 | 1 |
Sig | 0.287 | 0.369 | 0.842 | 0.171 | 0.398 | ||
N | 300 | 300 | 300 | 300 | 300 | 300 |
Results of the Regression Analysis
Audit fee | Coef. | St. Err. | t-value | p-value | [95% Conf | Interval] | Sig |
---|---|---|---|---|---|---|---|
CS | 0.001 | 0.01 | 42.79 | 0.000 | 0.01 | 0.03 | *** |
CC | 151.71 | 25.04 | 6.06 | 0.000 | 102.4 | 200.9 | *** |
CR | −6.96 | 23.64 | −0.29 | 0.768 | −53.4 | 39.5 | |
‘BIG10’ | 481.66 | 60.61 | 7.95 | 0.000 | 362.3 | 600.9 | *** |
CGAF | 45.24 | 51.88 | 0.87 | 0.384 | −56.8 | 147.3 | |
PAC | 215.21 | 214.48 | 1.00 | 0.316 | −206.9 | 637.3 | |
TEN | 26.05 | 11.81 | 2.20 | 0.028 | 2.7 | 49.3 | ** |
IS | 45.81 | 24.31 | 1.88 | 0.061 | −2.0 | 93.6 | * |
‘BIG10’ × POST2019 | 920.34 | 85.12 | 2.59 | 0.011 | 53.4 | 387.3 | *** |
Constant | −77.43 | 198.58 | −0.39 | 0.697 | −468.2 | 313.4 | |
Mean dependent var | 3632.000 | SD dependent var | 1411.080 | ||||
R-squared | 0.879 | Number of obs | 300 | ||||
F-test | 243.045 | Prob > F | 0.000 | ||||
Akaike crit. (AIC) | 4607.977 | Bayesian crit. (BIC) | 4641.311 |
Variable definitions, theoretical link and expected sign
Construct | Operational measure | Theoretical link | Expected sign |
---|---|---|---|
Audit Fee (LnAF) | Natural log of statutory audit fee (€) | Dependent variable | − |
Client Size (CS) | Ln (Total Assets) | RBV | + |
Client Complexity (CC) | Business segments, geographical divisions, or interactions between business units. | RBV | + |
Client Risk (CR) | 3-point ordinal score (1 = Low, 2 = Medium, 3 = High) assigned annually by the engagement partner; criteria: distress, complexity, audit history. | Agency | + |
Audit firm Size (‘BIG10’) | 1 = member of Big 10 network, else 0 | Signalling | + |
Corporate Governance (CGAF) | 0–10 composite: Board Independence (0–4) + Audit-Committee Expertise (0–3) + Gender Diversity (0–3); recalculated each fiscal year. | Institutional voids | +/− |
POST2019 | 1 for FY 2020–2022, else 0 | Regulatory shock | ± |
‘BIG10’ × POST2019 | Interaction term | H6 | + |
Controls | Profitability (ROA), Auditor Tenure, Industry Specialisation dummies, Year FE. | — | var |
Differences in Audit Fees Based on Audit Firm Size
Audit Firm Size (‘BIG10’) | Posterior | 95% Confidence Interval | |||
---|---|---|---|---|---|
Mode | Mean | Variance | Lower Bound | Upper Bound | |
Audit Firm Size (‘BIG10’) = 0 | 3,512.1 | 3,512.1 | 12,792 | 3,290.3 | 3,734 |
Audit Firm Size (‘BIG10’) = 1 | 3,761.8 | 3,761.8 | 13,858 | 3,530.9 | 3,992.6 |
Audit Fee (AF) | Sum of Squares | df | Mean Square | F | Sig. |
Between Groups | 4,666,010.4 | 1 | 4,666,010.4 | 2.35 | 0.126 |
Within Groups | 590,686,789.5 | 298 | 1,982,170.4 | ||
Total | 595,352,800 | 299 |
Differences in Audit Fees Based on Client Risk
Client Risk (CR) | Posterior | 95% Confidence Interval | |||
---|---|---|---|---|---|
Mode | Mean | Variance | Lower Bound | Upper Bound | |
Client Risk (CR) = 1 | 3,695.5 | 3,695.5 | 44404.2 | 3,282.2 | 4,108.8 |
Client Risk (CR) = 2 | 3,407.0 | 3,407.0 | 28143.5 | 3,078.5 | 3,736.8 |
Client Risk (CR) = 3 | 3,571.8 | 3,571.8 | 31221.7 | 3,225.3 | 3,918.4 |
Client Risk (CR) = 4 | 3,893.7 | 3,893.7 | 24977.3 | 3,583.7 | 4,203.7 |
Client Risk (CR) = 5 | 3,532.5 | 3,532.5 | 49954.7 | 3,094.1 | 3,970.8 |
Audit Fees | Sum of Squares | df | Mean Square | F | Sig. |
Between Groups | 9,883,210.0 | 4 | 2,470,802.5 | 1.245 | .292 |
Within Groups | 585,469,589.9 | 295 | 1,984,642.6 | ||
Total | 595,352,800.0 | 299 |
Sensitivity checks
Model | Dep. Var. | Sample | ‘BIG10’ Coef. | CS Coef. | Adj. R2 |
---|---|---|---|---|---|
(1) Baseline OLS HC3 | LnAF | Full 300 | 481.7 *** | 0.00100 *** | 0.882 |
(2) 2SLS (instrumented ‘BIG10’) | LnAF | Full 300 | 512.7 *** | 0.00102 *** | 0.871 |
(3) Alt. dep. var. (Fee/Assets) | Fee/TA | Full 300 | 0.034 *** | 0.00080 *** | 0.425 |
(4) Excluding ‘BIG10’ clients | LnAF | n = 252 | – | 0.00090 *** | 0.734 |
(5) Year FE + CPI control | LnAF | Full 300 | 479.6 *** | 0.00101 *** | 0.889 |
(6) Public firms only | LnAF | n = 15 | 620.3 ** | 0.00070 * | 0.793 |
Theory to Hypothesis development
Theory | Key mechanism in Kosovo | Linked hypothesis (section 2.4) | Regression variable(s) |
---|---|---|---|
Agency | Low litigation → muted risk pricing | H3 | CR |
Signalling | Brand value under opacity | H4 | ‘BIG10’ |
Regulation amplifies brand | H6 | ‘BIG10’ × POST2019 | |
RBV | Capability demands of size/complexity | H1, H2 | CS, CC |
Institutional voids | Weak enforcement blunts the CG effect | H5 | CGAF |
Differences in Audit Fees Based on Client Complexity
Client Complexity (CC) | Posterior | 95% Credible Interval | |||
---|---|---|---|---|---|
Mode | Mean | Variance | Lower Bound | Upper Bound | |
Client Complexity (CC) = 1 | 3,439.4 | 3439.4 | 51,062.8 | 2,996.2 | 3,882.6 |
Client Complexity (CC) = 2 | 3,429.8 | 3429.8 | 22,303.3 | 3,136.9 | 3,722.8 |
Client Complexity (CC) = 3 | 3,522.7 | 3522.7 | 24,561.8 | 3,215.3 | 3,830.1 |
Client Complexity (CC) = 4 | 3,757.1 | 3757.1 | 30,799.8 | 3,412.9 | 4,101.3 |
Client Complexity (CC) = 5 | 4,409.0 | 44,09.0 | 58,799.6 | 3,933.4 | 4,884.6 |
Audit fees | Sum of Squares | df | Mean Square | F | Sig. |
Between Groups | 26,819,165.8 | 4 | 6,704,791.4 | 3.479 | .009 |
Within Groups | 568,533,634.1 | 295 | 1,927,232.6 | ||
Total | 595,352,800.0 | 299 |
Testing for Multicollinearity
Variables | VIF | 1/VIF |
---|---|---|
‘BIG10’ | 1.033 | .968 |
CR | 1.03 | .97 |
CS | 1.02 | .981 |
CGAF | 1.015 | .985 |
TEN | 1.014 | .986 |
CC | 1.013 | .987 |
IS | 1.01 | .99 |
PAC | 1.01 | .991 |
Mean VIF | 1.018 |
Testing for Heteroskedasticity
Breusch-Pagan / Cook-Weisberg test for heteroskedasticity | Value |
---|---|
chi2(1) | 58.28 |
Prob > chi2 | 0.6717 |
Split-sample by ownership type
Sample | N | ‘BIG10’ Coef. | p-Value | CS Coef. | p-Value | Adj. R2 |
---|---|---|---|---|---|---|
Private companies | 285 | 467.8 *** | 0 | 0.00102 *** | 0 | 0.876 |
Public companies | 15 | 620.3 ** | 0.014 | 0.00070 * | 0.083 | 0.793 |
The results of the Cronbach's Alpha test
N | % | ||
---|---|---|---|
Cases | Valid | 300 | 100.0 |
Excluded | 0 | 0.0 | |
Total | 300 | 100.0 | |
Reliability Statistics (Test) | |||
Cronbach's Alpha | Number of Items | ||
0.802 | 10 |
Summary of Hypothesis Testing
H | Hypothesis | Coefficient | P-Value | Testing |
---|---|---|---|---|
1 | A significant positive relationship exists between the size of the audited entity and audit fees in Kosovo. | β =0.001 | P=0.000 | Accepted |
2 | A significant positive relationship exists between the complexity of the audited entity and audit fees in Kosovo. | β=151.71 | P=0.000 | Accepted |
3 | There is a significant positive relationship between the risk of the audited entity and audit fees in Kosovo. | β=−6.96 | P=0.768 | Rejected |
4 | There is a significant positive relationship between large audit firms (‘Big-10’) and higher audit fees in Kosovo. | β=481.66 | P=0.000 | Accepted |
5 | Strong corporate governance is associated with lower audit fees in Kosovo. | β=45.24 | P=0.384 | Rejected |
6 | Regulatory moderation hypothesis: the positive association between ‘BIG10’ engagement and audit fees is stronger after the 2019 enactment of Law No. 06/L 032 than before (tested via an interaction term ‘BIG10’ × POST2019). | β=920.34 | P=0.011 | Accepted |
Descriptive Statistics
Variables | N | Minimum | Maximum | Mean | Std. Deviation (SD) |
---|---|---|---|---|---|
Audited companies (sample) | 300 | 1 | 300 | 150.5 | 86.7 |
Audit Fee | 300 | 900 | 640 | 3632 | 1411 |
Client Size (CS) | 300 | 548,769.4 | 4,998,729.5 | 2,798,741.7 | 922,337.2 |
Client Complexity (CC) | 300 | 1 | 5 | 2.8 | 1.19 |
Client Risk (CR) | 300 | 1 | 5 | 3 | 1.2 |
Audit Firm Size (‘BIG10’) | 300 | 0 | 1 | 0.48 | 0.50 |
Corporate Governance of Audited Firms (CGAF) | 300 | 1 | 2.9 | 1.9 | 0.57 |
Profitability of the Audited Company (PAC) | 300 | 1.1% | 49.92% | 25.69% | 13.98% |
Auditor Tenure (TEN) | 300 | 1.0 | 9.0 | 4.9 | 2.54 |
Industry Specialisation (IS) | 300 | 1 | 5 | 2.9 | 1.2 |
Distribution of the Data
Variable | Obs | W | V | z | Prob>z |
---|---|---|---|---|---|
AF | 300 | 0.958 | 8.845 | 5.117 | .654 |
CS | 300 | 0.944 | 11.997 | 5.832 | .860 |
CC | 300 | 0.995 | 1.013 | 0.031 | .488 |
CR | 300 | 0.993 | 1.411 | 0.808 | .209 |
‘BIG10’ | 300 | 1 | 0.104 | −5.308 | .999 |
CGAF | 300 | 0.954 | 9.778 | 5.352 | .860 |
PAC | 300 | 0.955 | 9.533 | 5.293 | .964 |
TEN | 300 | 0.985 | 3.196 | 2.728 | .203 |
IS | 300 | 0.997 | 0.68 | −0.906 | .817 |
Differences in Audit Fees Based on Industry Specialisation
Industry Specialisation (IS) | Posterior | 95% Confidence Interval | |||
---|---|---|---|---|---|
Mode | Mean | Variance | Lower Bound | Upper Bound | |
Industry Specialisation (IS) = 1 | 3,560.9 | 3,560.9 | 49,250.0 | 3,125.7 | 3,996.2 |
Industry Specialisation (IS) = 2 | 3,644.2 | 3,644.2 | 28,846.4 | 3,311.1 | 3,977.4 |
Industry Specialisation (IS) = 3 | 3,540.5 | 3,540.5 | 25,560.1 | 3,226.9 | 3,854.5 |
Industry Specialisation (IS) = 4 | 3,619.1 | 3,619.1 | 27,661.0 | 3,292.9 | 3,945.3 |
Industry Specialisation (IS) = 5 | 3,908.1 | 3908.1 | 54,574.4 | 3,449.9 | 4,366.3 |
Audit Fees | Sum of Squares | df | Mean Square | F | Sig. |
Between Groups | 3,711,426 | 4 | 927,856.6 | 0.463 | 0.763 |
Within Groups | 5,916,413 | 295 | 2,005,563.9 | ||
Total | 5,953,528 | 299 |