A New Look at the Determinants of the Management Advisory Service Purchase Decision

Abstract:     
This research examines firm need determinants of Management Advisory Service (MAS) acquisition from the incumbent auditor. Prior research has examined the effects of industry, exchange membership, auditor specialization as a provider of MAS services, and selected agency variables on MAS acquisition. The authors of this paper believe that it is also important to investigate the effects of firm activity on the MAS purchase decision. Accordingly, information on firm activities, events surrounding the firms, MAS purchase of 216 companies, and other information was collected. The results support the importance of knowing industry membership, auditor identity, and firm ownership structure in predicting such purchase. This study's major contribution lies in demonstrating the importance of having information about realized or potential activities of the firm in predicting MAS purchase. This knowledge is important because it suggests that MAS provision may strengthen the auditor's hand in dealing with the client.

JEL Classification: M49

working papers series