The coursework for the module consists of one piece of work comprising up to 4,000 words that aims to test your understanding of underlying principles of quantitative research in the social sciences, with a particular emphasis on accounting and finance contexts. The coursework will contribute 100% of the total mark for the module. The coursework requires you to perform and present regression analysis of data, accompanied by a commentary that explains the tests performed, the interpretation of these tests in the context of accounting and finance, and a brief critical evaluation of the method used.
PART 1: TEST OF CAPM
The spreadsheet S:/Teaching/Research Methods/Coursework - Pricing Factors 17- 18.xls contains the monthly market (mkt_rf), size (smb), book-to-market (hml) and momentum (umd) asset pricing factors for US stocks from July 1975 (1975m7) to June 2016 (2016m6). It also contains the monthly returns of six portfolios3 sorted by size and book-to-market ratios (B/M) for any additional analysis if possible.
(Note: all the pricing factors and industry portfolios are already in returns, they are not prices!)
REQUIRED:
Use these asset pricing factors to test the validity of the Capital Asset Pricing Model (CAPM) for your industry portfolio returns. Write a detailed commentary to explain the regression models, hypothesis testing, diagnostic tests and analysis of residuals that you are using and interpret your findings. Your commentary should include the following:
(a) An explanation of the theories and models being tested with reference to the literature,
(b) A statement of coefficient values under the null hypotheses,
(c) Summary statistics and correlation matrix,
(d) Presentation of regression results,
(e) Interpretation of hypothesis testing on coefficients,
(f) Diagnostic tests to evaluate the goodness of fit of your regression model,
(g) Analysis of residuals to explain the possible bias, demonstrate how these potential bias may be corrected, and discuss any differences in results after adjusting for the bias.
(h) Any other data, tests, or information that you feel are interesting and relevant.
PART 2: DETERMINANTS OF AUDIT FEES
Your spreadsheet (AUDITx.csv) contains a random sample of a cross section of 5,000 UK firms. For each firm, you have been provided with the following variables:
(a) log of audit fee (logafee);
(b) log of sales (logsal);
(c) log of total assets (logta);
(d) number of subsidiaries (nsubs);
(e) exports divided by sales (expsales);
(f) total liabilities divided by total assets (gearing) (tlta);
(g) return on total assets (retta);
(h) current assets divided by current liabilities (cacl);
(i) a dummy variable to indicate if the firm's audit is performed by one of the big four auditors (big4).
REQUIRED:
Use the data on the variables listed above to investigate whether firm characteristics explain the cost of audit. Write a detailed commentary to explain the regression models, hypothesis testing, diagnostic tests and analysis of residuals that you are using and interpret your findings. Your commentary should include the following:
(a) An explanation of how and why these variables could explain audit fees,
(b) A statement of coefficient values under null hypotheses,
(c) Summary statistics and correlation matrix,
(d) Presentation of regression results
(e) Interpretation of hypothesis testing on coefficients,
(f) Diagnostic tests to verify the validity of your regression model,
(g) Analysis of residuals (no need check autocorrelation as this is cross-sectional data),
(h) Any other information or tests that you feel are relevant.
PART 3: A CRITICAL EVALUATION OF THE METHOD USED (1,000 WORDS)
Finally, you are required to critically compare quantitative research methods (i.e., OLS regressions) with qualitative research methods (e.g., case study, interviews, etc.), in terms of validity, reliability, and generalizability. Before the evaluation, you must first define these three concepts with reference to the relevant literature on research methods.
You may also explain whether and how qualitative research methods may be applied in accounting and finance research to address the limitations of quantitative methods. You may also explain briefly the philosophical stances behind these research methods.
Part 3 should not exceed 1,000 words.
OTHER REQUIREMENTS:
- Use Times New Roman, font size 12.
- No indentation for the first paragraph of each section, then indent from the second paragraph onwards.
- 1.5 or double line spacing.
- Make sure there are no typos (you will lose marks for obvious typos, e.g., CAMP instead of CAPM).
- Writing an Abstract is not necessary.
- Put tables and figures (if any) in the main text.