External auditors are hired to review and analyze the financial and other records of an organization and to attest to the integrity of the organization's financial statements. In recent years, the fees charged by auditors have come under increasing scrutiny. S. Butterworth and K. A. Houghton, two University of Melbourne (Australia) researchers, investigated the effects of several variables on the fee charged by auditors. The variables are listed at the bottom of the page.
a. Write the least squares prediction equation.
b. Assess the overall fit of the model.
c. Interpret the estimate of ß3.
d. The researchers hypothesized the direction of the effect of each independent variable on audit fees. These hypotheses are given in the "Expected Sign of ß" column in the table on p. 587. (For example, if the expected sign is negative, the alternative hypothesis is Ha: P,
e. The main objective of the analysis was to determine whether new auditors charge less than incumbent auditors in a given year. If this hypothesis is true, then the true value of ß1 is negative. Is there evidence to support this hypothesis? Explain.
