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An Application of the Boostrap Method to the Simultaneous Equations Model of the Demand and Supply of Audit Services

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  • DONALD R. DEIS
  • R. CARTER HILL

Abstract

This paper extends the application of the bootstrap method in accounting research to a simultaneous equations model of the demand and supply of audit services with mixed qualitative and continuous dependent variables. A moderately sized sample of 118 quality control reviews (Copley, Doucet, and Gaver 1994) is used to demonstrate the bootstrap method and compare results to estimates of standard errors obtained from Amemiya's 1978 asymptotic generalized least squares (GLS) procedure. We find that the GLS t†statistics are inflated by as much as 55 percent and the corresponding p†values are likewise overstated when compared to the bootstrap results. The problem is more acute with the qualitative dependent variable for audit quality, which is often the key variable of interest.

Suggested Citation

  • Donald R. Deis & R. Carter Hill, 1998. "An Application of the Boostrap Method to the Simultaneous Equations Model of the Demand and Supply of Audit Services," Contemporary Accounting Research, John Wiley & Sons, vol. 15(1), pages 83-99, March.
    • Handle: RePEc:wly:coacre:v:15:y:1998:i:1:p:83-99
    DOI: 10.1111/j.1911-3846.1998.tb00551.x
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    1. Freedman, David A & Peters, Stephen C, 1984. "Bootstrapping an Econometric Model: Some Empirical Results," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(2), pages 150-158, April.
    2. Deis, Donald Jr. & Giroux, Gary, 1996. "The effect of auditor changes on audit fees, audit hours, and audit quality," Journal of Accounting and Public Policy, Elsevier, vol. 15(1), pages 55-76.
    3. Amemiya, Takeshi, 1978. "The Estimation of a Simultaneous Equation Generalized Probit Model," Econometrica, Econometric Society, vol. 46(5), pages 1193-1205, September.
    4. Copley, Pa & Gaver, Jj & Gaver, Km, 1995. "Simultaneous Estimation Of The Supply-And-Demand Of Differentiated Audits - Evidence From The Municipal Audit Market," Journal of Accounting Research, Wiley Blackwell, vol. 33(1), pages 137-155.
    5. Gaver, Jennifer J & Gaver, Kenneth M, 1995. "Simultaneous Estimation of the Demand and Supply of Differentiated Audits," Review of Quantitative Finance and Accounting, Springer, vol. 5(1), pages 55-70, March.
    6. Marais, Ml, 1984. "An Application Of The Bootstrap Method To The Analysis Of Squared, Standardized Market Model Prediction Errors," Journal of Accounting Research, Wiley Blackwell, vol. 22, pages 33-54.
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    Cited by:

    1. K. Khang & T. D. King, 2015. "Capital market access and corporate loan structure," Applied Economics, Taylor & Francis Journals, vol. 47(4), pages 374-397, January.

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