Knowledge spillover from other assurance services

We argue that services which are complimentary and closer aligned to the annual report audit provide greater insight about risk and are more likely to exhibit the existence of economies of scope (knowledge spillover) through a positive association with audit fees. Specifically, we consider the potential for knowledge spillover from the auditing of triennial Long-Term Plans (LTP) to the annual report audit for a large sample of New Zealand municipals over the period 2005–2013. We find the LTP audit fees are positively related to municipal annual report audit fees and other fees (audit of for-profit subsidiaries, non-audit services) are not. This suggests that knowledge spillovers are dependent on the nature of the additional services. We also find evidence of higher fees for private sector auditors for both the annual report and the LTP audit. The LTP (forecast) audit fee is associated with municipal size, complexity, and political competition.     

Office Property Returns in Shanghai,Guangzhou, and Shenzhen

Commercial property development in China has been a growth industry in recent years. This article examines the returns on office property in the three major cities of Shanghai, Guangzhou, and Shenzhen in the period 1991 to 1997. Analyses based on the Security Market Line (SML) show that property investments in the office sector in Shanghai and Guangzhou have excess returns and that Shanghai office property tends to dominate the optimal portfolios due to its superior risk-adjusted returns. While equal returns in Shanghai, Guangzhou, and Shenzhen cannot be rejected, the Shanghai office property is subject to the least systematic risk, compared with all other cities. Hong Kong office property is included only in the less risky optimal portfolios. In addition, our results indicate that there is little correlation between the office property returns in Hong Kong and the office property in Guangzhou and Shenzhen. Guangzhou and Shenzhen office markets, which are geographically relatively close to Hong Kong, tend to be more volatile than the Shanghai office market. However, owing to Shenzhens proximity to Hong Kong, there is significant correlation between the returns of the office property in Shenzhen and the office property in Hong Kong.