Academic journal article Global Journal of Business Research

Lagged Effects of Training on Financial Performance: Evidence from Longitudinal Data

Academic journal article Global Journal of Business Research

Lagged Effects of Training on Financial Performance: Evidence from Longitudinal Data

Article excerpt

ABSTRACT

This paper examines the lagged association between training and financial performance of audit firms. Based on a panel data of 136 audit firms in Taiwan from 1992 to 1998, this paper constructs a year fixed effect regression model to test our hypotheses. Both partners' and assistants' training have significantly positive effects on financial performance with the former occurring in the current and one-year-lagged periods and the latter occurring in the one-year-lagged and two-year-lagged periods. Positive and significant association between training and financial performance informs practitioners that training contributes to audit firms and justifies the continuous education requirement in the public accounting profession. The evidence of one-year-delay effect of assistants' training on performance conveys managerial implication to the practitioners in their employee recruitment policy. This paper is the first to exclusively examine the lagged association between training and financial performance at the organization level. The evidence of lagged association explains in part the mixed results on the relation between training and financial performance reported by prior studies. The two-year association between training and financial performance fills the literature gap left by researches on training both in the public accounting and in other industries.

JEL: M42

KEYWORDS: training, financial performance, lagged association, audit firms

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Professional training is a compulsory requirement in the auditing industry to advance the expertise and competency of auditors and audit quality. All professional staffs, including partners and assistants, are required to participate continuing professional education (CPE) and take some minimum CPE hours in a specified period. In practice, partners always take the CPE curriculums first and then pass the new knowledge on to assistants through internal training programs. Assistants apply the knowledge gained directly to audit engagements. From the initial training of partners to the final application of assistants to field works takes time. Does training matter? Prior studies indicate that the association between training and financial performance is mixed (Tharenou et al, 2007). We argue that lagged association exists between training and performance and the degree of association varies for different training participants. Few prior studies directly examine the lagged association between training and financial performance, which motivates us to investigate it with the results to fill the gap left.

Panel data of 136 audit firms are constructed from 1992 to 1998 and our focusing the research on specific industry adds research homogeneity (Fasci and Valdez, 1998). This study defines professional training as training hours taken by partners and by assistants. At a given time, training hours of partners and assistants have significantly positive effects on financial performance with the former occurring in the current and one-year-lagged periods and the latter occurring in the one-year-lagged and two-year- lagged periods. The effects of partners' and assistants' training on performance cease in the two-year-lagged and three-year-lagged periods, respectively. Namely, the financial performance effect of training lasts two years and the effect of partners' training occurs immediately but that of assistant's delays one year. Next, the degree of the effects of partners' training on performance is higher than that of assistants' in the current period but lower in the two-year-lagged period.

Prior studies most closely related to this study are d'Arcimoles (1997) and Chen et al. (2008). The former examines the correlation between human resource policies (including training) and company performance, and the latter investigates the association between CPE and financial performance of audit firms. d'Arcimoles (1997) defined training as rate of training expenses and reports an immediate and permanent correlation between training and performance. …

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