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An Analysis of Production Function of Korean Accounting Firms

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This study estimates and analyzes a Cobb-Douglas production function of Korean accounting firms, representing the relation between total revenues and human resource inputs of accounting firms for the 1997–2012 period. This relation is moderated by contextual variables including the mix of service revenues, the level of service concentration, the number of offices, the status of incumbent big firms with Big N affiliation, and the status of incumbent local firms without Big N affiliation that may affect a firm’s revenue generation. Four major findings emerge from this study. First, I find that scale economies exist in the Korean accounting industry, but not scope economies. Second, I document that non-auditing services including taxation and management advisory services are more productive than traditional auditing services in revenue generation. Third, I report that the number of offices is negatively associated with a firm’s revenue generation. Fourth, I demonstrate that incumbent big firms with Big N affiliation outperform the other groups of firms in generating revenues because of brand name reputation or provision of quality-differentiated services.
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Keywords: Accounting Firm; Production Function; Scale Economies; Scope Economies

Document Type: Research Article

Affiliations: Department of Business Administration, College of Social Sciences, Sungshin Women’s University, 2 Bomun-ro 34da-gil, Seongbuk-gu, Seoul, 02844, Republic of Korea

Publication date: November 1, 2016

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