Studying the production efficiencies of Taiwan’s public audit firms under the framework of two-stage models

We apply a two-stage model to characterize the multistage production process of Taiwan’s public audit firms. In the first stage, firms are assumed to hire some ratios of partners and managers (x1) and fixed assets (x2) to undertake various cases. In the second stage, firms employ the remaining x1 and x2, together with cases and the number of employees, to complete the entrusted cases. We use copula methods to derive the log-likelihood function and find that the smaller firms outperform that of large firms in both stages, and scale and scope economies prevail in either or both stages.