Electronic copy available at: http://ssrn.

com/abstract=2051198
Determinants of Audit Staff Turnover: Evidence from Taiwan
Abstract
High employee turnover has long been a concern in the public accounting profession.
Frequent hiring, training, and replacement of professional staff could have an adverse
impact on audit quality. Using proprietary data from a Big Four accounting firm in
Taiwan, we employ survival analysis and examine the factors that explain the turnover of
entry-level auditors. We find that female auditors are more likely to depart the accounting
firm, while performance ratings, salary, and accounting background are significantly
related to higher retention rates. We do not find, however, that masters degrees
incrementally increase the retention rates of professional employees. These results hold
after controlling for macroeconomic factors. Our evidence complements prior survey
studies and suggests that gender, performance, salary, and accounting degree explain
employee turnover in Taiwanese public accounting firms.


Keywords: auditor turnover, public accounting, gender, accounting education, survival
analysis.

JEL classification: M41, M42.
Electronic copy available at: http://ssrn.com/abstract=2051198

1


Summary
Prior research investigates personal characteristics and work-related factors that explain
auditor turnover behaviour including gender (Greenhaus et al. 1997), job performance (Farris
1971), stress (Collins and Killough 1992; Collins 1993), and job satisfaction (Bullen and
Flamholtz 1985; Parker and Kohlmeyer 2005). Most of the studies, however, rely on
questionnaires and surveys to gauge these factors from the perceptions of respondents. Also,
much prior research has operationalized turnover as intent to resign which may not adequately
capture actual turnover (Kirschenbaum and Weisberg, 1994; Tett and Meyer, 1993). Therefore,
the objective of this study is two-fold. First, we aim to provide large-sample, systematic evidence
using actual employee retention data to shed additional light on high turnover at public
accounting firms and provide insight into the successful retention of young talent in the
accounting profession. Second, our data is from firms in Taiwan, a country with an emerging
economy, which allows us to compare our results to previous results from other countries.
Using proprietary data from a Big Four accounting firm in Taiwan on all audit employees
that were hired for entry-level positions but had not been promoted to partners during the study
period, we employ survival analysis methodologies to examine the factors that explain auditor
retention.
1
This data includes educational background, gender, performance ratings, and salaries
of audit employees. To control for macroeconomic conditions, we use stock market returns as a
proxy.
With regard to personal characteristics, we find that gender and a degree in accounting
are significantly associated with employee retention. Female auditors exhibit a lower retention
rate than males, while employees with a degree in accounting have a higher retention rate than
those without. On the other hand, we do not find that graduate education significantly increases
the retention rate. Our results suggest that a degree in accounting contributes significantly to
career success in public accounting. Graduate education in itself does not give an individual a
better chance of surviving in public accounting. Further, we find that better performance ratings
and high salaries are also related to a higher retention rate. This is consistent with results from
prior survey research regarding the relation between turnover and both job performance and job
satisfaction. Finally, our results are unchanged when we control for the macroeconomic
conditions that also influence retention.

1
The survival analysis methodology is described more fully in Section 3.1.

2


1. Introduction
High turnover at large public accounting firms has long been a critical issue facing the
profession. Hiltebeitel and Leauby (2001) find that less than half of accounting graduates who
choose public accounting for their first positions remained in the field three years after the start.
2

High turnover introduces challenges for public accounting firms because hiring and training new
employees is costly.
3
Further, a discussion paper by the British Financial Reporting Council
(FRC) suggests that failure to retain experienced and skilled staff can pose threats to the skill of
the audit team, and thus impair audit quality (FRC 2006).
4

Job satisfaction is also related to the departure decision of accounting employees. A
survey by Bullen and Flamholtz (1985) suggests that higher job satisfaction is associated with
lower intention to depart. Further, prior research finds that employees' perceptions of career
development and extra-organizational job options (Bullen and Flamholtz 1985), levels of stress
inside and outside organizations (Collins and Killough 1992), and organizational culture (Parker
and Kohlmeyer 2005; Sheridan 1992) are the underlying factors that influence job satisfaction,
and hence employees' intention to leave.
According to the Survey Report of Audit Firms in Taiwan published by the Financial
Supervisory Commission, high turnover and a shortage of experienced and skilled audit staff
have constantly been among the top five challenges facing public accounting firms.
5
This
suggests that the continuing loss of young professional employees in accounting firms is a
pervasive issue not only in the U.S. but around the world. While factors such as gender,
performance, and job satisfaction appear to explain the turnover in general, limited evidence
exists as to the relative significance of each factor in explaining employee turnover. Further,
differences in culture and educational requirements for accounting graduates may result in
different associations between personal and work-related factors and the turnover behaviour
across countries.

2
Specifically, Hiltebeital and Leauby (2001) show that only 23.5 percent of new accounting hires remained in the
field three years after starting, compared to 55.8 percent of accounting graduates who chose public accounting for
their first positions.
3
As an example, an international accounting firm once estimated that hiring and replacing an existing employee
costs about 150 percent of that employees annual salary (Hiltebeitel and Leauby 2001).
4
The FRC report suggests four main drivers of audit quality: (1) the culture within an accounting firm; (2) the skills
and personal qualities of audit partners and staff; (3) the effectiveness of the audit process; and (4) the reliability
and usefulness of audit reporting.
5
The top five challenges noted are fierce competition, decreasing demand for audit service, high turnover for audit
staff, shortage of experienced audit staff and high personnel costs.

3


We extend previous auditor turnover research in three ways. First, due to the lack of
publicly available data for actual auditor turnover, most prior research resorts to surveys or
questionnaires to gather data for auditor turnover intentions. We are able to directly examine
actual auditor turnover using a proprietary data set from a large public accounting firm. While
turnover intentions may be positively correlated with actual turnovers (Parasuraman 1982;
Fishbein and Ajzen 1975), and hence can be used as a reasonable proxy for actual turnover, these
two concepts are fundamentally different and may be affected by different factors.
Kirschenbaum and Weisberg (1990) highlight the fact that actual turnover requires both a
turnover intention as well as the availability of a job opportunity matching the employees
prospective employment criteria. In addition, empirical evidence indicates that turnover
intentions and actual turnover are determined by different factors. Specifically, the employees
age, length of employment, salary, and assessment of career advancement are significantly
associated with actual turnover but not with turnover intention (Kirschenbaum and Weisberg
1994).
Second, we bring an advanced econometric tool, survival analysis, to an accounting
context to assess the impact of employee-specific variables on the auditor turnover rate. Our
proprietary dataset provides us with information pertaining to not only whether or not an
employee has left the firm, but also the amount of time that an employee has worked at the firm.
Using the survival analysis methodology, we can estimate the probability that an auditor will
leave the firm at a certain time. More importantly, we can compare the turnover probabilities for
different groups, such as male vs. female auditors.
Third, most prior research focuses mainly on public accounting firms in the U.S.
We show that, in a sample of Taiwanese auditors, an accounting background is critical to the
career success of an individual in public accounting but graduate education itself does not
significantly increase the retention rates of professional employees. These findings suggest that
public accounting is a highly specialized profession that requires solid accounting education. To
the extent that the Taiwanese auditors in our study are similar to auditors in other countries, our
study has significant implications for the hiring strategy of public accounting firms. In addition,
we reveal that the high turnover of female auditors also occurs outside the U.S. Given the
increase in female accounting graduates over the years (Pillsbury et al. 1989; AICPA 2004;
AICPA 2009), our study mirrors the continuing call for improved retention of young female

4


talent in the profession. We expect Taiwanese auditors to be similar to auditors in the U.S.
because the profession is relatively similar, regardless of geographic location, with respect to the
vast amount of technical expertise, business and communication skills required by employees, as
well as the high-stress environment facing auditors. However, there may be differences between
U.S. and Taiwanese auditors considering that we are examining the profession in a very different
culture.
The remainder of the paper is organized as follows. Section 2 reviews related literature
and presents our hypotheses. Section 3 discusses our research design and data. Section 4 reports
the results and Section 5 concludes.
2. Related Literature and Hypotheses Development
High turnover has been a major concern in large public accounting firms (FRC 2006).
This study focuses mainly on personal characteristics as explanations for voluntary departure of
professional employees. We focus on personal characteristics for two main reasons. First,
turnover is costly to firms (Hiltebeitel and Leauby 2001) and we assume that public accounting
firms would benefit from having more information about which personal characteristics are
associated with turnover. This would help firms adjust recruiting and hiring decisions and may
encourage them to counsel employees and support programs that would help maintain employee
satisfaction and performance. Second, prospective employees of public accounting firms may
benefit from a deeper understanding of the characteristics that are associated with employee
turnover so that they are better prepared for the decision to pursue public accounting. Consider,
for example, a prospective female employee who is concerned that gender may be associated
with turnover. She may decide to pursue a certain type of education (either major in accounting
or pursue a master's degree) in order to offset a potential increased turnover risk attributed to
gender. If prospective employees make better employment decisions, this will not only benefit
the employee but the public accounting firm as well.

Gender
Gender is perhaps the most-studied personal characteristic in explaining the departure
decisions of employees of accounting firms. A 2004 AICPA report notes that since 1986 over 50
percent of accounting graduates have been women, and by 2004 women made up 56 percent of

5


new entrants into public accounting. Female auditors, however, have not progressed into senior
positions at the rate of their male counterparts, especially at larger accounting firms. For instance,
the same AICPA report indicates that women comprise 19 percent of partners on average, with a
low of 12 percent for larger firms (AICPA 2004).
Academic evidence mirrors the low percentage of female partners and shows that female
auditors are more likely to leave public accounting than male auditors (Pillsbury et al. 1989;
Rasch and Harrell 1990).
6
Dalton et al. (1997) investigate four aspects of the contemporary
public accounting environment that concern the departure of accounting professionals:
competitive environment, work/non-work obligations, internal/external control and supervision,
and litigation risk. Despite significant associations of the four factors with employee turnover,
female partners and managers differ significantly from their male counterparts only in work/non-
work obligations. This suggests that intense work commitment and non-work obligations are
likely to exert more pressure on female professionals. Similarly, Collins (1993) studies
differences in stress between the two genders and attributes high departure rates of female
auditors to their greater levels of stress. On the other hand, Greenhaus et al. (1997) find that
career-related reasons, rather than family-related ones, cause the high turnover of female auditors.
Collin et al. (2007) support the contention that considerations of gender before and during an
auditor's employment influence the treatment, performance, and perceptions of auditors, both
male and female. Collectively, prior research shows that both conventional reasons like family
pressure and job commitment as well as career-related reasons contribute to the high turnover of
female auditors. This high level of turnover is especially ironic when considered in light of the
findings of O'Donnell and Johnson (2001) that female auditors demonstrate a superior ability to
address complex problems than do their male counterparts. Because the aforementioned studies
suggest that females have higher turnover than males, we therefore test the following hypothesis:
H1: The turnover rate of females is greater than the turnover rate of males.

Master's Degree
Several studies examine the association between graduate education and the turnover of
accountants using U.S. data. Alford (1990), Siegel (1987), and Wright (1988) consistently find
that individuals who hold a master's degree have better performance, advance more rapidly, and

6
See Pillsbury et al. (1989) for a summary of earlier studies on women in public accounting.

6


exhibit lower turnover rates in accounting firms than undergraduates with an accounting major.
The master's degrees in consideration include an MS, an MAcc, or an MBA with an accounting
concentration. These findings provide two implications. First, they suggest that the 150-hour
rule, which requires individuals to complete 150 hours of instruction to sit for the CPA exam in
the U.S., results in increased retention rates at accounting firms. Second, MBAs who select
accounting as their concentration are more likely to achieve career success in accounting firms
than undergraduate accounting majors, even though MBAs may not have the same depth of
accounting knowledge. Wright (1988) attributes the comparative advantages of MBAs over
undergraduate accounting majors to maturity, stronger communication skills, broader business
knowledge, and leadership capabilities.
In Taiwan, the 150-hour rule is not required for individuals to sit for the CPA exam. As a
consequence, the percentage of professional employees in accounting firms in Taiwan who hold
a masters degree is lower than that of their counterparts in the U.S.
7
Furthermore; the
accounting profession in Taiwan has voiced the desire to hire more non-accounting graduates or
MBAs. The rationale is that the employees at accounting firms should possess broad knowledge
and strong analytical and communication skills in addition to traditional accounting training so
they can better adapt to a rapidly changing business environment and technological changes in
information systems. This rationale is consistent with the conclusion of DeNardo and Thornton
(1982) that MBAs are often perceived to have several comparative advantages over
undergraduate accounting majors, including maturity, increased ambition, and broader
background. We therefore investigate whether graduate education, considered purely as an
additional level of education rather than as specialized accounting training, affects the retention
rates of professional employees at accounting firms in Taiwan as it does in the U.S. Due to the
discrepancies in educational requirements and percentages of professional employees who hold a
masters degree, it remains unknown whether graduate education has similar implications for
career success in public accounting outside the U.S. This leads to our second hypothesis, stated
in the alternative form:
H2: The turnover rate of an employee without a masters degree is greater than the
turnover rate of an employee with a masters degree.

7
The annual survey by Taiwan Financial Supervisory Commission (FSC 2009) shows that about 10.5 percent of
new hires at the accounting firms in 2007 hold a masters degree, much lower than the 26 percent of their
counterparts in the U.S. Also, the survey reveals that of senior audit staff and managers, only 14.5 percent and 21.4
percent hold a masters degree, respectively.

7



Accounting major
Not only has there been a recent trend in the increased hiring of graduates with a masters
degree but also of non-accounting majors in the 2007-2008 academic year. However, while the
majority of surveyed firms say that they expect to hire roughly the same percentage of non-
accounting majors in coming years, the AICPA also reveals the contrasting trend that 16 percent
of the surveyed accounting firms plan to reduce hiring of non-accounting graduates (AICPA,
2009). This contrast raises the question of whether the entry-level auditors who lack an in-depth
accounting background are less likely to survive in public accounting. Our study therefore adds
to the literature by investigating whether having an accounting background affects the turnover
of the professional employees at accounting firms in Taiwan. This leads to our third hypothesis,
stated in the alternative form:
H3: The turnover rate of an employee without a major in accounting is greater than the
turnover rate of an employee with a major in accounting.

Performance and Salary
Although our study focuses on personal characteristics, we also analyse the impact of
performance and salary on auditor turnover. In a study of nearly 3,000 audit and tax employees
from twelve public accounting firms in the U.S., Barkman et al. (1992) find that employees
classified as high performers had significantly longer tenure at accounting firms compared to
employees classified as low performers. It took more than forty months before half of the high
performers left their firms while it took just 26 months for half of the low performers to leave
their firms (Barkman et al. 1992). Farris (1971) studies turnover of scientists and engineers at
two different organizations and finds mixed results. Respondents who classify themselves as
high performers had lower turnover than low performers did at one of the two organizations, but
there was no difference in turnover between high and low performers at the other organization
(Farris, 1971). In a discussion of prior literature, Jackofsky (1984) categorizes the empirical
relationship between employee performance and job turnover into three categories; studies
finding a positive relationship between the two variables, studies finding a negative relationship
between the two variables, and studies finding no relationship between the two variables.
Because of the inconsistency in the relationship between performance and turnover, our next
hypothesis is stated in the null form:

8


H4: The turnover rate of employees with lower performance evaluations does not differ
from the turnover rate of employees with higher performance evaluations.

In addition to job performance, salary is also expected to play a role in the job turnover
decision. Marxen et al. (1996) conduct a telephone survey of former employees of the six largest
accounting firms at the time (i.e. Big 6) in six major cities across the US, in order to better
understand alumnis experiences before, during, and after employment. When asked to identify
their primary decision for leaving the firm, salary was the second most popular answer.
8
Indeed,
Farris (1971) finds that turnover is negatively associated with income and Albrecht et al. (1981)
find that compensation is an area of dissatisfaction for both junior and senior level accountants.
This leads to our last hypothesis, stated in the alternative form:
H5: The turnover rate of employees with lower salaries is greater than the turnover rate of
employees with higher salaries.

3. Research Design
3.1 Methodology
We employ survival analysis to examine factors that might explain the retention rates of
professional employees. The survival analysis methodology is commonly used in the field of
medicine because medical researchers are often interested in the length of time for a particular
outcome to take place or in comparing the time until the event occurs for two or more groups.
For example, researchers may be interested in the survival time of a group of patients that
received an organ transplant or researchers may define survival time as the time in remission and
compare the survival times of two groups of patients where one group is receiving treatment and
the other group is not. The first main benefit of survival analysis is that it allows us to determine
how and why an event occurs, not just whether or not an event occurred. For example, a
researcher can determine patients time in remission and for those whose disease returns, the
time of the relapse. This information allows the researcher to determine, at any time during the
study period, the likelihood that a patient will relapse. Moreover, the researcher can examine the
impact of treatment on the likelihood that a patient will relapse at any given time during the
study period. Probit or logit estimation can help the researcher determine the impact of treatment
on the likelihood of relapse but would treat those that relapsed early in the study period the same

8
The most popular response was less demanding.

9


as those that relapsed later in the study period. The second main benefit of survival analysis is
that censored data is accounted for properly. Referring to the previous example, the disease may
return for a patient after the study has been completed. This patient would be included in the
study as having survived until the completion of the study and therefore the outcome would be
considered right-censored. Survival analysis accounts for the fact that survival changes over
time; OLS estimation results would not be as meaningful as OLS would estimate coefficients at
some fixed point in time.
Survival analysis is comprised of two functions; the survivor function, S(time), and the
hazard function, h(time). The survivor function is defined as the probability of an individual
surviving (i.e. maintaining employment) beyond a specified time (t). The hazard function
provides the estimated rate at which an individual will not survive (i.e. will leave the firm) at
time (t) given that the individual has survived (i.e. maintained employment) up to time (t).
Survival analysis is usually written and discussed in terms of the hazard function such that the
rate at which an event occurs is referred to as a hazard rate.
In this study, we define survival as the auditors length of employment at the public
accounting firm and the hazard as the rate of leaving the firm given that the auditor has remained
with the firm for a specific amount of time. We compare the hazard rates of several groups;
females versus males, accounting majors versus non-accounting majors, graduates of a masters
program versus graduates of a bachelors degree, lower performers versus higher performers, and
lower salary levels versus higher salary levels. The hazard rate has been used in previous
accounting studies for the purposes of examining the rate of client defections during the demise
of Arthur Andersen (Barton 2005; Asthana et al. 2010), the rate of firms financial covenant
violation (Zhang 2008), and the rate of firms breaking a string of earnings increases (Beatty et al.
2002), among others.
We first compute the retention time (time) for each newly hired employee as the number
of months that elapsed between his/her hiring and departure dates. The retention time is censored
for active employees since their total length of employment is unknown. The survival rate
function, S(time), denotes the probability of the length of employment that is at least equal to
time. The hazard rate function, h(time), estimates the probability of employees departing in the
next month given that they have survived through the current month. In equations (1) (3)

10


shown below, we present Coxs (1972) proportional hazards model. We do not derive the
formulas shown below as these are the standard formulas used to estimate the hazard rate.

h(time) = h
0
(time) exp(
1
Gender +
2
Major +
3
Degree +
4
Rating +
5
Salary +
6
Return) (1)

where:
time = the length of employment through the current month, subject to right-
censoring;
h
0
(time) = an arbitrary baseline hazard function;
Gender = 1 if the auditor is female and 0 otherwise;
Major = 1 if the auditor majored in accounting and 0 otherwise;
Degree = 1 if the auditor has a masters degree and 0 otherwise;
Rating = 1 if the annual evaluation rating falls into the bottom 10%, 2 if the
annual evaluation rating falls into the middle 80%, and 3 if the annual
evaluation rating falls into the top 10% (in order to combine data from
two firms before a merger with the resulting firm after the merger);
Salary = individual auditors salary relative to the mean salary of all audit staff,
which is set to 100; and
Return = market returns for the year.

Because prior research indicates that employees are more likely to voluntarily terminate their
employment when other job opportunities are more readily available, we control for alternative
job opportunities by including a measure of stock market returns for the year because we assume
that when market conditions are more favourable, job opportunities are more easily available.
We expect to find that stock market returns are positively associated with auditors turnover rate.
Returning to equation (1), we note that it can also be written as follows:

!!"#$%" !
#
!"#$%" $%&!
#
&
#
#'
'

"


where X
i
represents factors explaining voluntary termination of employment and
i
represents
estimated regression weights. Over time, the hazard function can increase, decrease or remain
constant, which is derived by the magnitude of the estimated coefficient of variables of interest.
We use X
1
as an example to explain the model. Holding everything else constant, when X
1

increases one unit, Eq. (1) can be rewritten as:


!( !"#$%" !
#
!"#$%" $%&!
'
!&
'
'"
#
&
#
#)
'

"
(2)

11


By dividing Eq. (2) by Eq. (1), we obtain the following:


!(!"#$% "* !!"#$% " $%&!
'
"

(3)


The ratio of the two hazards is thus . If the hazard function is increasing, then is
larger than one. In other words, an estimated negative implies that the hazard function is
decreasing. If equals one, then the hazard function is constant. If X
1
represents Gender,
then equation (3) estimates the ratio of the female hazard rate to the male hazard rate which
allows us to estimate the difference in turnover rate for females and males.

3.2 Data
We have obtained a proprietary dataset on professional employees who started in entry-
level positions in a Big Four accounting firm in Taiwan from 1996 to 2005 but had not been
promoted to partner at the time the data was obtained.
9
This dataset contains information
regarding the employees length of employment with the firm, his/her gender, whether he/she
majored in accounting, whether he/she has a masters degree, and his/her annual evaluation
rating. Due to confidentiality concerns, the dataset does not provide the employees salary; rather,
his/her salary relative to the mean salary of all auditors in the accounting firm is provided.
Because a merger took place during our sample period, our sample contains professional
employees who started as entry-level auditors in the merged firm or in its two predecessors.
Since the evaluation ratings are not directly comparable between the two pre-merger accounting
firms and the evaluation rating system changed post-merger, we follow the suggestion of the
Human Resource Department of the post-merger accounting firm and convert the performance
ratings into a three-point scale.
10
We exclude employees with tenure of less than six months as
they are in a probationary period. Our final sample therefore consists of 3,025 auditors. Finally,
we obtain the stock market return information from The Taiwan Economic Journal. Table 1
reports our sample distribution by year.



9
All historical data on partners was removed from the sample we obtained from the firm for confidentiality reasons,
so we cannot include promoted staff in our analysis. This data limitation confines our analyses to the entry-level
auditors, senior staff auditors, and managers of the firm.
10
Please see the variable definition for Rating for details.

12


_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Insert Table 1 Here
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

4. Empirical Results
4.1 Descriptive Statistics
Table 2 reports the turnover rate across time. Because entry-level auditors in large audit
firms in Taiwan typically sign a two-year contract, turnover peaks after two years of employment
(at the 24
th
to the 30
th
month of employment). Fifty percent of new auditors tenures last less than
30 months, and 87 percent of new auditors tenures less than 60 months.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Insert Table 2 Here
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Table 3, Panel A shows that 2,320 auditors (about 77 percent) leave the firm during our
sample period, and 705 auditors (23 percent) remain employed with the firm at the end of the
sample period. Because the data is censored, the mean 36 months of employment for all auditors
underestimates the true average tenure. This is because we dont know survival length exactly;
an auditor may leave the firm after the data is collected which would increase the mean length of
unemployment if the study period had continued. Median employment, on the other hand, is free
of this downward bias. The median length of employment for all auditors is 30 months. The
median of departed auditors is 27 months, and the median of those who remain at the firm is 35
months.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Insert Table 3 Here
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Panel B of Table 3 reports the distribution of the accountants tenure by personal
characteristics (Gender, Major and Degree). With regard to gender, the median length of
employment for male and female auditors is 33 months and 28 months, respectively. This
suggests that male auditors have longer tenure than their female colleagues. The first and third
quartiles exhibit a similar pattern. Further, newly hired auditors who were accounting majors

13


have a longer median tenure with the firm (32 months) than non-accounting majors (24 months).
In contrast, the median tenure of auditors who hold a masters degree is 27 months, which is
lower than the median tenure of 32 months for those who do not have a masters degree.
Together, the descriptive statistics suggest that male auditors and accounting majors in Taiwan
appear more likely to stay longer in a public accounting firm than female auditors and non-
accounting majors. Graduate education, on the other hand, does not increase the retention rates
of new hires in Taiwan.
Figure 1 depicts the Kaplan-Meier curve of the survival probability (Kaplan and Meier
1958). Male auditors (the dotted line in Panel A) have a higher retention probability after the 25
th

month than female auditors. Accounting majors (the solid line in Panel B) have a significantly
higher retention probability than non-accounting majors for the first 60 months of employment
or so. Panel C indicates that there is very little difference in the retention probability between
Taiwanese auditors with a masters degree and auditors without a masters degree.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Insert Figure 1 Here
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
4.2 Multivariate Results
Table 4 reports our results for the Cox proportional hazards model. Note that data
requirements for performance ratings, salary, and stock returns further result in a loss of 726
observations. Our sample size therefore differs according to the model specifications. Models 1
and 2 are tests that include only personal characteristics, but they use the full and restricted
samples, respectively.
Equation (3) was estimated separately for each of the six models. Estimating Model 1
using equation (3) indicates that the ratio of the female hazard rate to the male hazard rate is
1.1955. Because the hazard rate is the probability at a given time of leaving the firm, females are
19.6% more likely to leave the firm. Model 2, which differs from Model 1 because it uses the
restricted sample, indicates that females are 1.3755 or 37.6% more likely to voluntarily depart
from the firm. In each of the five models estimated, female auditors are significantly more likely
to leave the firm than their male counterparts (p-values<.01), consistent with our first hypothesis.

14


Referring back to equations (1) through (3), if we assume that X
1
represents Degree, then
equation (3) estimates the ratio of the hazard rate (i.e. the rate at which an auditor will leave the
firm) of an employee with a masters degree to the hazard rate of an employee without a masters
degree. The coefficient on Degree, however, is not statistically different from 1 in any of the six
models, suggesting that newly hired auditors holding a masters degree have about the same
probability of leaving the firm as those without a masters degree. The insignificance of masters
degrees in explaining the turnover of professional employees in Taiwan is different from the
results of prior literature using U.S. data and does not support our second hypothesis.
Our third hypothesis predicts that the turnover rate of non-accounting majors is greater
than that of accounting majors. Consistent with this prediction, the coefficients on Major in each
of the six models range from 0.7473 to 0.8282 (p-values < 0.05), indicating that the probability
of accounting majors leaving the firm is only 75 to 83 percent as high as it is for non-accounting
majors. Our findings suggest that in Taiwan appropriate accounting education is more likely to
increase the retention rate than graduate education in general.
Model 3 and Model 5 include performance ratings in the model specifications when
estimating Equation (3). Model 3 includes all three personal characteristics as well as
performance rating and indicates that the probability of auditors with a high rating leaving the
firm is only 73 percent as high as auditors with a low rating. Model 5 includes all three personal
characteristics, performance rating and salary and the results found in Model 3 are unchanged
with respect to performance rating. In both models 3 and 5, turnover is lower for auditors with a
high performance rating (p-values<.01) and the results on Gender, Major, and Degree remain
similar.
Models 4 and 5 indicate the impact of salary on auditors likelihood of leaving the firm.
Due to concerns about confidentiality, the salary data we have obtained are relative to the
average salary of all professional employees, which is set to 100. Results of estimating equation
(3) indicate that the probability of an auditor with a high salary leaving the firm is about 76-78
percent as high as the probability of an auditor with a low salary leaving the firm. Results of
Models 4 and 5 indicate that salary is significantly associated with auditor turnover, consistent
with hypothesis 5, and the results for Gender, Major, and Degree remain similar.



15


_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Insert Table 4 Here
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
In Model 6, we control for market returns, which capture economic conditions and extra-
organizational options, and include all predictor variables when estimating equation (3). The
coefficient on Return is 1.0217 (p-value < 0.01), suggesting that when economic conditions are
good, professional employees at the accounting firm are more likely to leave the firm. The
results for personal characteristics, performance ratings, and salaries remain intact. We also
measure economic conditions with gross domestic product (GDP) instead of market returns and
note that the (untabulated) results remain unchanged.
Collectively, we find that gender, academic background in accounting, performance, and
salary, but not a masters degree, significantly explain the retention rate of professional
employees in Taiwan. This holds true even after controlling for economic factors.
5. Conclusion
The development and quality improvement of public accounting require dedication and
commitment of professional accounting staff. Analyses of the factors affecting the retention rates
in accounting firms not only benefit accounting firms human resource management, but also
help young auditors plan their careers. We use proprietary data to study the turnover of
Taiwanese auditors. The use of the survival analysis methodology in our analysis has two
important benefits. First, it allows us to estimate not only whether certain characteristics are
associated with turnover, but also how certain characteristics are associated with the length of
time in which an employee remains with the firm. Second, survival analysis is not affected by
the fact that some employees have not left the firm at the time that the study was concluded.
Our results suggest that female auditors have higher turnover rates and that those with an
academic background in accounting have lower turnover rates. Further, we find that auditors
with better performance ratings and higher salaries have longer tenure at the accounting firm.
Unlike previous studies using U.S. data, however, we find that graduate education is not a
significant factor in explaining turnover. These results are unchanged when controlling for
economic conditions.

16


To the extent that our results generalize to other countries, they provide implications for
the retention of young talent in accounting firms. The higher turnover rate we find with female
auditors suggests that accounting firms can improve the retention rate by devoting more
resources to the career development of female professionals, providing them with more support,
and reducing their stress from the conflict between work and family. Further, our findings have
implications for accounting education. We show that accounting education improves ones
chances of surviving in a public accounting firm. While recruiting non-accounting graduates has
its merits, accounting firms may need to provide intense training to increase their chances of
success in the firm. We also find that performance ratings and salaries are positively related to
retention rates, suggesting that positive and monetary encouragement to well-performing
auditors is more likely to help in retaining young professionals. Finally, our findings suggest that
when professional employees have better opportunities outside the accounting firm, especially
when the economy is good, accounting firms should provide early solutions to retain employees.
To the existing literature, our study adds data on an international setting and provides further
analysis of factors that are associated with the turnover of professional employees. We offer
insights into the development of methods to increase retention rates, which can be assumed to
improve audit quality.
We note that our study is subject to several limitations. First, we are unable to include
data on partners of the firm and we are unable to use position level of the auditor in our analysis.
Second, our data is compiled from auditors in Taiwan and to the extent that the culture and
economics of Taiwan differ from those in other countries, our results may not generalize to
auditors on a global level.
We suggest that future research expand our analysis by interviewing or surveying
auditors to try to gain a better understanding of why personal characteristics such as gender are
associated with turnover and why a graduate degree is not. With more information, accounting
firms can improve their hiring and retention strategies. Future research might also usefully
extend this study to include auditors beyond entry level; of especial interest might be an analysis
that maps gender onto the increasing levels of complexity of the tasks assigned to auditors as
they get promoted and gain experience and the trust of their firms.


17


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20


Table 1

Number of Auditors by Year

Year No. of Auditors
Percentage
(%)
1996 144 4.76
1997 220 7.27
1998 233 7.70
1999 251 8.30
2000 306 10.12
2001 280 9.26
2002 336 11.11
2003 350 11.57
2004 456 15.07
2005 449 14.84
Total 3,025 100.00









21



Table 2

Distribution of Tenure

All Auditors Departed Auditors
From (month) To (month) Probability
Cumulative
Probability
Probability
Cumulative
Probability
7 12 8% 8% 1% 1%
13 18 7% 15% 1% 2%
19 24 15% 30% 20% 22%
25 30 20% 50% 14% 36%
31 36 12% 62% 14% 50%
37 42 11% 72% 10% 61%
43 48 6% 78% 6% 67%
49 54 5% 84% 6% 72%
55 60 4% 87% 4% 76%
61 66 3% 90% 2% 78%
67 72 2% 92% 3% 82%
73 78 1% 93% 1% 82%
79 84 1% 94% 4% 87%
85 90 1% 96% 1% 88%
91 96 1% 97% 2% 90%
97 102 1% 97% 1% 91%
103 108 1% 98% 3% 94%
109 114 1% 99% 1% 95%
115 120 1% 99% 2% 98%
121 126 0% 100% 1% 99%
127 132 0% 100% 1% 100%
133 138 0% 100% 0% 100%









22


Table 3

Descriptive Statistics
a

Panel A: Overall
Departed
Auditors
Remaining
Auditors
All
Auditors
Number of Auditors 2,320 705 3,025
Tenure (in months)
Mean

32.9 46.1 36.0
Min 7.0 7.0 7.0
Q1 21.0 24.0 22.0
Median 27.0 35.0 30.0
Q3 41.0 57.0 45.0
Max 132.0 137.0 137.0


Panel B: By Personal Characteristics
Gender Major Degree
Male Female Accounting Other Master's Lower
Number of Auditors 1,211 1,814 2,516 509 1,046 1,979
Tenure (in months)
Mean

38.3 34.4 36.5 33.4 35.2 36.4
Min 7.0 7.0 7.0 7.0 7.0 7.0
Q1 22.0 21.0 23.0 18.0 21.0 23.0
Median 33.0 28.0 32.0 24.0 27.0 32.0
Q3 48.0 42.0 46.0 37.0 40.0 46.0
Max 137.0 136.0 137.0 136.0 136.0 137.0
a.
Sample period from 1996 to 2005, including all auditors that entered the accounting firm as entry-level
auditors, excluding those with tenure less than six months.









23


Figure 1
Kaplan-Meier survival probability curve by personal characteristics
a

Panel A: By Gender
Male
Female
0
.
0
0
0
.
2
5
0
.
5
0
0
.
7
5
1
.
0
0
P
r
o
b
a
b
i
l
i
t
i
e
s
0 50 100 150
Months
Kaplan-Meier Survior Function


Panel B: !" $%&'(
accounting major
non-accounting major
0
.
0
0
0
.
2
5
0
.
5
0
0
.
7
5
1
.
0
0
P
r
o
b
a
b
i
l
i
t
i
e
s
0 50 100 150
Months
Kaplan-Meier Survior Function







24


Figure 1
Kaplan-Meier survival probability curve by personal characteristics (Contd)


Panel C: !" )*+(**
with master's degree
without master's degree
0
.
0
0
0
.
2
5
0
.
5
0
0
.
7
5
1
.
0
0
P
r
o
b
a
b
i
l
i
t
i
e
s
0 50 100 150
Months
Kaplan-Meier Survior Function

a. The x-axis is time (in number of months), and the y-axis is retention probability (between 0 and 1).


25


Table 4

Survival Analysis Results

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
Gender 1.1955 1.3755 1.3909 1.3713 1.3874 1.4036
(0.008) (0.001) (0.001) (0.001) (0.001) (0.001)
Major 0.8282 0.7473 0.7507 0.7454 0.7494 0.7565
(0.026) (0.021) (0.023) (0.020) (0.022) (0.027)
Degree 0.9557 0.9324 0.9366 0.9305 0.9349 0.9146
(0.522) (0.495) (0.523) (0.482) (0.511) (0.384)
Rating 0.7335 0.7274 0.7264
(0.001) (0.001) (0.001)
Salary 0.7753 0.7633 0.7761
(0.061) (0.047) (0.063)
Return 1.0217
(0.000)
Sample Size 3,025 2,299 2,299 2,299 2,299 2,299
LR-statistic 12.37 17.19 28.15 20.52 31.88 105.95
p(LR) (0.006)
(0.001) (0.000) (0.000) (0.000) (0.000)


Note: Numbers reported in parentheses are two-tailed p-values. Variables are defined below:
Gender = 1 if the auditor is a female; and 0 otherwise;
Major = 1 if the auditor majored in accounting, and 0 otherwise;
Degree = 1 if the auditor has a master's degree, and 0 otherwise;
Rating = 1 if the annual evaluation rating falls into the bottom 10 percent, 2 if the annual evaluation
rating falls into the middle 80 percent, and 3 if the annual evaluation ratings falls into the top
10 percent;
Salary = individual auditor's salary relative to the mean salary of all audit staff, which is set to 100; and
Return = market returns of the current year.