I'm working here on my research proposal for my alma mattera. I'm in accountancy science field, however, I need to deal with some statistics on this occassion. Would be very grateful if you could help me.
I have an idea to built this kind of regression model:
Y= x1 + x2 + x3
The research question is: Do audit prices, non audit services provided for audit client and auditor's tenure has an impact on audit quality?
Observation - financial reporting of particular company. Let's say, we have 40 companies and their audited financial reporting.
Y (proxy for audit quality) - count of errors in financial reporting. I guess it would suitable to group the errors found in each observation. For instance, range from 1 to 5 (where 1 - from 0 to 2 errors, 2 - from 2 to 4... and so on.). Or it could be left in relative scale - just how many errors (mistakes in financial reporting) I will found.
x1 - price of audit services of financial reporting. It could be left in model in a relative scale, or coded as 1 - price above the average price in the sample, 0 - price bellow the average price in the sample
x2 - non-audit services provided for the audit client. 1 - there were other services provided, 0 - there where no other services provided.
x3 - the tenure of auditors. Like: 1 - the same auditors are auditing the financial reporting 3 or more years in the row, 0 - the same auditors are not auditing the financial reporting more or equal 3 years. Or it could be put in the model in relative scale: 2, 3, 4, 5, ...8 years in a row.
That's my assumptions how to encode the data. Could you express your opinion how the data should be encoded actually, what kind of regression should I use here and what statistical tests would be suitable for evaluating the results?
Thank you very much