This module is assessed by two pieces of coursework submitted during the autumn semester.
This second coursework for the module consists of one piece of work comprising up to 2,500 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 50% of the total mark for the module. The coursework requires you to perform and present regression and statistical analysis of data accompanied by a commentary that explains the regressions and tests that are being performed and the interpretation of those tests in the context of accounting and finance theory.
The deadline for submission of your assignment is 10.00 on Monday 10th January, 2010. The assignment should be delivered to the Post Box in Room A04 of the Aberconway Building.
The assessed coursework must be entirely your own work. Severe penalties will be imposed on students who are found guilty of plagiarism. You are referred to your module catalogue for further details. In addition, in an attempt to prevent plagiarism, you will be provided with a unique data set for the assignment. Details of where you can find your data are provided overleaf.
Bibliography & Referencing:
You are expected to consult academic journal articles and professional journal articles, where appropriate. Please remember to reference your sources using an appropriate citation system (such as Harvard style). Essays will lose marks for poor referencing. Guidance for referencing styles can be found in the library and online:
http://www.cardiff.ac.uk/schoolsanddivisions/divisions/insrv/help/guides/citingreferences/tutorial/harvard.html
DATA
There are two parts to the assignment, which test your understanding of quantitative research methods. The first part is a test of the Capital Asset Pricing Model (CAPM) using stock returns of a particular industry portfolio and the second part is an examination of firm characteristics that may affect audit fees using a unique sample of UK firms.
The data for the assignment can be found at S:/Teaching/Research Methods. For Part 1, you are allocated a specific industry portfolio to investigate. For part 2, you are allocated a random sample of 5000 firms. The data allocation can be found in the file S:/Teaching/Research Methods/Assignment Data Allocation.xls. The industry portfolio returns are found in the spreadsheet S:/Teaching/Research Methods/Industry Portfolios.xls. Your specific data set for investigating audit fees in part 2 can be found at S:/Teaching/Research Methods. The data allocation spreadsheet shows you precisely which data you should use for your assignment.
PART 1: TEST OF CAPM
The spreadsheet S:/Teaching/Research Methods/FF Data 10-11.xls contains the market (mkt-rf), growth (smb), value (hml) and momentum (umd) asset pricing factors for US stocks.
REQUIRED
Use these asset pricing factors to test the validity of the Capital Asset Pricing Model (CAPM) for your industry portfolio returns. Write a commentary to explain the methods that you use and interpret your findings. Your commentary should include the following:
(a) an explanation of the theory that is being tested,
(b) a statement of coefficient values under null hypotheses,
(c) presentation of regression analysis,
(d) interpretation of hypotheses tests on coefficients,
(e) analysis of diagnostic tests to verify the validity of your regression model,
(f) any other information or tests that you feel are relevant.
PART 2: AUDIT FEES
Your spreadsheet (KEVINX.csv) contains a sample of 5,000 UK firms. For each firm you have been provided with the following variables:
(i) log of audit fee (logafee);
(ii) log of sales (logsal);
(iii) log of total assets (logta);
(iv) number of subsidiaries (nsubs);
(v) exports divided by sales (expsales);
(vi) total liabilities divided by total assets (gearing) (tlta);
(vii) return on total assets (retta);
(viii) current assets divided by current liabilities (cacl);
(ix) a dummy variable to indicate if the firm’s audit is performed by one of the big four auditors (big4).
REQUIRED
Use the information on the above variables to investigate whether firm characteristics can explain the cost of audits. Write a commentary to explain the methods that you use and interpret your findings. Your commentary should include the following:
(a) an explanation of the reasons for including these variables in an investigation of audit fees,
(b) a statement of coefficient values under null hypotheses,
(c) presentation of regression analysis
(d) interpretation of hypothesis tests on coefficients,
(e) analysis of diagnostic tests to verify the validity of your regression model
(f) any other information or tests that you feel are relevant.