Conduct a factor analysis to identify latent factors

Reference no: EM133664877

Assignment Title: Predicting Audit Fees: A Multivariate Analysis

Objective: The objective of this assignment is to utilize various analysis techniques to predict audit fees based on various financial and non-financial factors such as market capitalization, industry, auditor, balance sheet assets, beta, and sales.

Dataset: Use a dataset containing information on audit fees, market capitalization, industry classification, auditor details, balance sheet assets, beta values, and sales for a sample of companies. See details of variables in the appendix.

Starting Point:Using Zhang and Myrteza(1995)as a starting point, conduct an abridgedliterature review to familiarise yourself with the research objective.

Prepare a comprehensive report that includes data summaries, analysis results, visualizations, and interpretations. Present your findings and conclusions in a well-organized manner. Include any code used for analysis in an appendix.

The paper should
• be typed and double-spaced;
• flow as a well-documented coherent paper;
• cite all sources;
• have correct formats for the bibliography, footnotes, and references;
• have on the first page of the paper, the title of the paper, the author's names, and
• have an executive summary.

Quality is the most appropriate determinant of the grade awarded, but it is suggested that approximately 2,000 words be a suitable length.

Tasks:
1. Data Exploration:
o Provide a summary of the dataset, including descriptive statistics, missing values, and outliers.
o Visualize the relationships between audit fees and each predictor variable using scatter plots.

2. Correlation Analysis:
o Calculate and interpret the correlation matrix between audit fees and predictor variables.
o Identify the variables with the highest and lowest correlations with audit fees.

3. Regression Analysis:
o Perform a multiple linear regression analysis with audit fees as the dependent variable and all predictor variables as independent variables.
o Evaluate the overall fit of the regression model using appropriate statistics (R-squared, F-statistic).
o Interpret the regression model coefficients, paying particular attention to the significance levels.

4. Factor Analysis:
o Conduct a factor analysis to identify latent factors that explain the shared variance among the predictor variables.
o Examine the factor loadings and determine the interpretation of each factor.
o Assess whether the identified factors provide insights into the underlying structure of the data and the potential for dimensionality reduction.
o Compare the predicted and actual audit fees to assess the model's accuracy.

5. Other Analysis:
o Robust
o Sensitivity
6. Discussion and Conclusion:
o Summarize the key findings from the regression, correlation, and factor analyses.
o Discuss the variables that significantly influence audit fees and their respective magnitudes.
o Reflect on the limitations of the analysis and potential areas for further research.

Reference no: EM133664877

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