MAA753 Professional Research And Analysis

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MAA753 Professional Research And Analysis

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MAA753 Professional Research And Analysis

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Course Code: MAA753
University: Deakin Business School

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Country: Australia

Questions:
You have to provide logical/ theoretical reasoning to develop your hypothesis. The hypothesis has to be developed along the lines of examining the relationship between CEO age and audit pricing behaviour/ audit fees.
Answer:
Introduction
Over the decades, the global commercial and business operations have experienced considerable dynamics, changes and developments, much of which can be attributed to international phenomena of immense significance like that of Globalisation, trade liberalisation and technological as well as infrastructural innovations, which in turn have cumulatively made the global business scenario, more inclusive, integrated and interconnected (Peng 2016). With the integration and increase in the level of competitions among the businesses in almost all types of industries across the world, the importance of proper accounting the financial management of the monetary assets and resources of the firms has also been felt across the globe (Zadek, Evans and Pruzan 2013).
In the technologically advancing global scenario, the accounting and financial reporting methods have also changed considerably and in the recent periods, the instances of corporate accounting frauds have also increased considerably, both in frequencies as well as in magnitude, as can be seen from the severe accounting scandals like that of WorldCom, Enron and others, which in turn has led to the increase in the importance of quality of financial reporting and auditing in the business organizations (Yallapragada, Roe and Toma 2012). The frauds have also raised questions regarding the credibility of the CEOs in those organizations. In this context, the personal attributes of the CEOs are expected to have considerable implications on the financial and accounting operations of the companies (Bevis 2013).
Keeping this into consideration the concerned research aims to analyse the importance of one of the primary personal attributes of the CEOs of the companies, that is their age, on their operations and decision-making processes as well as on their risk management and financial management efficiencies, thereby trying to analyse whether the age of the CEOs have influence on the auditing fees charged by the auditors from the concerned companies where these CEOs operate. For the purpose of studying the same the research takes into consideration the Australian listed companies.
Background 
With increase in the dynamics and complexities of financial operations, the increase in the number, magnitude and diversity of the different financial and accounting frauds have also increased considerably. These corporate frauds can be seen to be increasing in almost all types of industries and in almost all parts of the world. This can be seen from the following figure, showing the extent of frauds and sufferings of fraud victims, in the United States of America:

Figure 1: Increase in the number of fraud victims and extent of fraud losses in the USA
(Source: Gagliordi 2018)
Most of these frauds in the businesses can be seen to be arising out of financial or accounting misdeeds or lack of financial foresighted as well as efficiencies of the decision-making authorities of the companies, the CEO being one of the primary ones (Kassem and Higson 2012). A lot of the efficiency and appropriateness of the financial aspects of the companies depend on the overall efficiency, experience of the CEO as well as on the effectiveness of the functions of the financial reporting process of the CEO. Again, the auditing fees charged by the auditors from different companies also vary depending upon different attributes of the clients (Brigham and Houston 2012). Keeping this into consideration, the concerned research aims to study the impact of age of the CEO on the auditing fees charged, in the Australian listed companies. 
Literature Review
This section of the research proposal tries to conduct an extensive review of the different literary works and empirically evidenced scholarly resources, with the objective of incorporating the opinions of the scholars, primarily regarding the impacts of age of the CEO of the companies on the different aspects of the operational framework as well as decision-making activities of the companies
Impacts of age of CEO on the businesses 
There exist different perceptions regarding the ways in which the age of the CEO can affect the different operations and especially the financial activities of the companies. The primary notion behind the same is that with age the experience, pragmatism and as well as the ways of dealing with risks, among the CEOs change considerably (Serfling 2014). In this context, the primary perceptions of the different scholars can be seen to be captured as follows:
Age of CEO and the acquisition behaviour
Yim (2013), in his elaborate research paper, highlights one of the primary implications which the age of the CEOs in generally have on the decision-making aspects of the businesses across the globe. According to the author, the age of the CEOs considerably affects their decisions of acquisitions of other firms. As the paper suggests, in general acquisitions are linked to considerable and permanent increase in the level of compensations of the CEOs, which, encourages the young CEOs to pursue acquisitions as they are more risk taking. However, with age the level of risk aversion among the CEOs increase, which in turn tends to reduce their propensity to go for acquisitions.
Age of CEO and risk-taking behaviour
The assertions of Yim (2013) can be seen to be supported in the work of Serfling (2014), who try to validate the notion regarding the negative relationship of the CEO age with that of the level of risk-taking by the same. The author establishes the same empirically through a negative linkage of the age of the CEOs with that of volatility of stock returns of the concerned companies. As per the author, the older CEOs in general, make less risky investment decisions, especially in research and development and tend to diversify the operations of the companies to reduce the level of risks.
Age of CEO and risk of stock price crash
As highlighted by Andreou, Louca and Petrou (2017), the age of the CEO is also indirectly related to the extent of stock price crashes of the companies in the contemporary period. As per the assertions of the authors, hoarding of negative news is directly related to the compensations of the CEOs, which in turn makes it more lucrative for the younger CEOs to do the same, thereby asserting that younger CEOs due to their own compensation expectations are more likely to experience stock market crashes than those firms which have older CEOs. 
Age of CEO and quality of Financial Reporting
One of the crucial observations regarding the impacts of the age of the CEO can be seen to be put forward by Huang, Rose-Green and Lee (2012), according to whom, the age of the CEO is also directly related to the quality of the financial reporting of the same. The authors establish the positive relationship by analysing a sample of 3413 firms between 2005 and 2008 and also assert that aged CEOs negatively relate to the forecast of beating or meeting analyst earnings as well as financial restatements.
Thus, from the above discussion it becomes evident that the age of the CEOs plays considerably significant roles in different operations as well as the financial aspects and activities of the firms.
Factors determining audit fees of business organizations 
There lie different perceptions also regarding the factors which affect the fees that are charged by auditors for auditing the financial activities of different companies across the globe.
Equity Incentives and audit fees
According to Billings, Gao and Jia (2013), the accounting scandals in different companies are highly influenced by the managerial incentives and in such cases the auditors need to identify the attempted earnings manipulations. The authors argue that the equity incentives of the executives, being positively related to accounting frauds, which in turn also positively influence the fees charged by the auditors as they tend to perceive positive linkage between equity incentives and audit risk.
Power of the CFOs, audit committees and audit fees
According to Beck and Mauldin (2014), the audit fees are although considerably manipulated by the power which the CFO of the concerned companies hold. As per the assertions of the authors, although there exist regulations for deciding and negotiating on the auditing fees, the same can be seen to be lower in the presence of powerful CFOs while the fees can also be seen to be reduced less in those scenarios where the auditing committees hold greater power. However, the authors also suggest that the relationships between these variables are complex.  
Audit partner rotation and Audit fees
The auditing fees charged from different companies, as per Stewart, Kent and Routledge (2015), also depend on the rotation of audit partners of the concerned companies. Focussing on the Australian market, the authors argue that the presence of mandatory and voluntary rotation of auditing partners is positively related to high auditing fees.
Specialisation of audit partner and audit fees
Zerni (2012), in this context, asserts that the level of auditing fees charges from businesses also depend considerably on the level of specialization of the auditing partners of the concerned organizations. On the basis of the notion that the skills and experience of the auditors are human capital to the companies, the author argue that the specialisation of auditing partners span not only in different industries but also in different types of large and complex business institutions or larger and smaller clienteles, which influence their efficiencies and competitiveness. This in turn has considerable implications on the level of fees charged by the same from different companies.
Summary 
As is evident from the above discussion and review of the various literary works, there lies crucial implications of the age of the CEOs on the different operational activities as well as on the financial risks, reporting, accounting and other aspects of financial management and decision-making of the companies, in the contemporary period, in a generalised framework. On the other hand, various factors like the equity incentives of the executives, the auditing partners as well as power of the CFOs can be seen to be having considerable implications on the auditing fees charges by the auditors or committees from these organizations.
Literature Gap 
The existent literary and scholarly evidences, as studied in the above section, however, fails to show considerable assertions or findings regarding the linkages of the age of the CEOs of different companies with that of the fees charges by the auditors in the concerned companies and on how the former influence the latter. Keeping this into consideration, the concerned research proposes to analyse the same, with special emphasis on the Australian listed companies, in the contemporary period.
Reasearch Hypothesis Development 
Keeping the above discussion as well as the perceptions and opinions captured from different scholarly and literary works and also considering the gaps which are required to be addressed, the concerned research aims to study the relationship between the age of the CEOs of different organizations and the audit fees charged from the concerned Australian listed companies.
Research Objectives 
The primary objectives of the concerned research can be seen to be as follows:

To study the relationship ((if any) between the age of the CEOs and the audit fees charged in the Australian listed companies
To study the factors determining the audit fees in the Australian listed companies
To study the influences of the age of the CEOs on different financial operations of the Australian listed companies
To explore the ways and mediums through which the age of the CEO acts as a contributing factor in the fees structure of auditing in the Australian listed companies

Development of Research Hypothesis 
As can be seen from the assertions of the different literatures taken into consideration in the literature review section, the age of the CEOs, in general, has negative relationship with the stock market crashes, risk taking attitudes and also has positive relationship with that of the quality of the financial reporting in the companies. On the other hand, the literatures also show that the auditors in general charge higher prices in those companies where they perceive the risks of accounting frauds to be high, especially in those where the CEOs and CFOs are more encouraged to earn equity incentives or compensation, which in turn is found to be higher among young CEOs who tend to be more risk loving and less experienced. The audit fees are also found to be less in those companies where the CEOs hold more power and dominance, which in turn is tends to be more prominent in the case of those companies where the CEOs are older, as with age and experience the dominance and power of the CEOs also tend to increase.
Keeping this into consideration, the concerned research aims to explore whether the age of the CEOs has any linkage with the auditing fees charged by the auditing authorities from the concerned companies, emphasizing especially on the Australian listed companies. To explore the same, the concerned research forms a set of null and alternative hypotheses which can be seen to be as follows:
H0: The age of the CEO of the Australian listed companies is inversely related to the auditing fees charged in the concerned organizations.
H1: The age of the CEO of the Australian listed companies is not related or positively related to the auditing fees charged in the concerned organizations
Research methodology
For any research to be appropriate and contributing to the area where it ventures, it is of immense significance to form a proper and relevant research methodological framework, consisting of appropriate and related research design, approaches, data collection, analysis and interpretation methods, as the presence of the same makes the research findings more authentic and the interpretation of superior quality (Neuman 2013).  
Data Sources 
For the purpose of carrying out the concerned study, the research aims to collect quantitative data both from primary as well as secondary sources relevant for the concerned research. Quantitative or cardinally measurable data are taken in the concerned research, with the objective of capturing large volume of data, thereby incorporating the diverse perceptions which are present regarding the ways in which the age of the CEOs influence the audit fees and whether the relationship is positive or negative (Brinkmann 2014).
For collection of primary quantitative data, a sample of 50 employees in the managerial and executive level in different Australia listed companies is proposed to be selected and the data is proposed to be collected from them with the help of interviews conducted using survey questionnaires consisting of close ended questions (Mackey and Gass 2015). On the other hand, the research aims to collect quantitative and statistical evidences about the different aspects of the Australian listed companies (like those of age of CEOs, auditing fees, profits, accounting systems, operational costs and other related aspects) from the authentic and reliable secondary sources like those of various articles, journals, news articles and robust statistical websites where the relevant data remain previously collected and organized (Terrell 2012).
Sampling Techniques 
For the purpose of collection of primary data regarding the perceptions existing about the relationship between the age of the CEOs and audit fees (direct as well as indirect) the population which the concerned research considers is that consisting of the managerial and executive level employees in the different Australian listed companies. As this population is considerably huge and as it is not feasible for the research to incorporate the perceptions and opinions of all of the members of the population, the study aims to select a sample of 50 respondents from the population, selected by random sampling method (Sen and Singer 2017). The random sampling method is proposed to be used in the concerned research so as to remove any intended or unintended bias in the process of sample selection as in this method of sample selection all the units of a population has equal chance or probability of getting selected (Levy and Lemeshow 2013).
Research Variables 
Variables in any research are in general of two types- dependent and independent variables. The independent variables are those based on the dynamics and changes of which the dependent variable and their dynamics vary (Schwab 2013). In the concerned study, the variables are as follows:
Primary independent variable- Age of the CEOs in Australian listed companies
Primary dependent variable- Auditing fees in the companies
The relationship between the primary independent and dependent variables are proposed to be studied with the help of the following mediating and controlling variables:

Financial reporting quality of the CEOs
Risk averse or risk loving behaviour of the CEOs
Extent of accounting frauds in the concerned companies
Power and dominance of the CEOs in the concerned companies  

Research Models 
For the purpose of testing the hypothesis formed in the concerned research, the following statistical models are proposed to be used:

Pearson Correlation Coefficient-This statistical test is proposed to be used in the concerned research so as to measure the correlation (positive or negative) between the different study variables taken into consideration in the concerned research. It is a bivariate analysis, the value of the coefficient of which (r), varies between +1 and -1 (Sedgwick 2012).
Regression Analysis-While the correlation analysis shows the presence or absence of relationship between two variables it does not determine the cause and effect direction of the relationship. For the purpose of analysing the direction of relationship between the variables and also for the purpose of determining the level of significance of the relationship the regression analysis is proposed to be used by the concerned research (Seber and Lee 2012).

Conclusion 
In the contemporary period, with the rising number of incidents of accounting and financial frauds and increase in the dynamics of financial activities and auditing practices in the business organizations in the contemporary period, it becomes immensely important to consider the different aspects of the roles played by the CEOs of the companies and their attributes in these aspects. Keeping this into consideration, the concerned research proposes to analyse and study implications which the age of the CEOs of the Australian listed companies have on the auditing fees which the concerned companies face and also tries to determine the ways in which the former affects the latter. The research, if conducted properly and robustly, expects to have considerable implications for future researches in these domains, especially in the areas related to role of the CEOs, their decision-making aspects, risk management, financial management and auditing aspects in the businesses, not only in the commercial domains of Australia but also across different parts of the globe.  
References 
Andreou, P.C., Louca, C. and Petrou, A.P., 2017. CEO age and stock price crash risk. Review of Finance, 21(3), pp.1287-1325.
Beck, M.J. and Mauldin, E.G., 2014. Who’s really in charge? Audit committee versus CFO power and audit fees. The Accounting Review, 89(6), pp.2057-2085.
Bevis, H.W., 2013. Corporate Financial Reporting in a Competitive Economy (RLE Accounting). Routledge.
Billings, B.A., Gao, X. and Jia, Y., 2013. CEO and CFO equity incentives and the pricing of audit services. Auditing: A Journal of Practice & Theory, 33(2), pp.1-25.
Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage Learning.
Brinkmann, S., 2014. Interview. In Encyclopedia of critical psychology (pp. 1008-1010). Springer New York.
Gagliordi, N. 2018. Identity theft, credit card fraud cost US consumers $16 billion in 2016 | ZDNet. [online] ZDNet. Available at: https://www.zdnet.com/article/identity-theft-credit-card-fraud-cost-us-consumers-16-billion-in-2016/ [Accessed 13 Sep. 2018].
Huang, H.W., Rose-Green, E. and Lee, C.C., 2012. CEO age and financial reporting quality. Accounting Horizons, 26(4), pp.725-740.
Kassem, R. and Higson, A.W., 2012. The new fraud triangle model.
Levy, P.S. and Lemeshow, S., 2013. Sampling of populations: methods and applications. John Wiley & Sons.
Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design. Routledge.
Neuman, W.L., 2013. Social research methods: Qualitative and quantitative approaches. Pearson education.
Peng, M.W., 2016. Global business. Cengage Learning.
Schwab, D.P., 2013. Research methods for organizational studies. Psychology Press.
Seber, G.A. and Lee, A.J., 2012. Linear regression analysis(Vol. 329). John Wiley & Sons.
Sedgwick, P., 2012. Pearson’s correlation coefficient. Bmj, 345, p.e4483.
Sen, P.K. and Singer, J.M., 2017. Large Sample Methods in Statistics (1994): An Introduction with Applications. CRC Press.
Serfling, M.A., 2014. CEO age and the riskiness of corporate policies. Journal of Corporate Finance, 25, pp.251-273.
Stewart, J., Kent, P. and Routledge, J., 2015. The association between audit partner rotation and audit fees: Empirical evidence from the Australian market. Auditing: A Journal of Practice & Theory, 35(1), pp.181-197.
Terrell, S.R., 2012. Mixed-methods research methodologies. The qualitative report, 17(1), pp.254-280.
Yallapragada, R.R., Roe, C.W. and Toma, A.G., 2012. Accounting fraud, and white-collar crimes in the United States. Journal of Business Case Studies (Online), 8(2), p.187.
Yim, S., 2013. The acquisitiveness of youth: CEO age and acquisition behavior. Journal of financial economics, 108(1), pp.250-273.
Zadek, S., Evans, R. and Pruzan, P., 2013. Building corporate accountability: Emerging practice in social and ethical accounting and auditing. Routledge.
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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