NGUYEN QUOC TUAN

BUSINESS RESEARCH (BMBR5103) THE RELATIONSHIP OF JOB SATISFACTION, ORGANIZATION COMMITMENT AND ETHICAL CLIMATE ON THE TURNOVER INTENTION OF EXTERNAL AUDITORS IN BIG AUDITING FIRMS IN VIETNAM October 2017 ADVISOR’S ASSESSMENT …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… Advisor’s signature Nguyen The Khai Business Research – Nguyen Quoc Tuan Page ACKNOWLEDGEMENT To complete this study, I have to send my special thanks to Nguyen The Khai, DBA who has shown our class every step of how to a research and run SPSS software Moreover, he had even personally gone through and give valuable advised on our paper to every individual in class Without such detail instructions and advice, I am unable to complete this study of Business Research Methods I would also like to thanks my friends, my colleagues and the employees of PricewaterhouseCoopers Vietnam, KPMG Vietnam, Deloitte Vietnam and Ernst & Young Vietnam, whom had help to complete the questionnaires which is essential for me to conduct further on the research as well as they have played a huge role in helping me to comprehend complicated matters and granting me the ability to complete this study Lastly, I would like to thanks my classmates during the course by sharing knowledge and time to learn together in order to complete this paper on time Business Research – Nguyen Quoc Tuan Page TABLE OF CONTENTS ADVISOR’S ASSESSMENT ACKNOWLEDGEMENT ABSTRACT CHAPTER 1: INTRODUCTION Introduction Research Questions Theoretical Framework Conceptual Framework 12 Significance of the Study 13 Scope and Limitations .14 Hypothesis 14 Assumptions 14 Definition of Terms 15 CHAPTER 2: LITERATURE REVIEW 16 Job Satisfaction 16 Organizational Commitment 17 Ethical Climate 18 Turnover Intention .20 Private Accounting Sector 21 Public Accounting Sector 24 CHAPTER 3: RESEARCH METHODOLOGY 28 Research Design 28 Study Locale 29 Population and Sampling 29 Research Instrumentation 30 Data Gathering Process 32 Statistical Treatment of Data 33 Ethical Consideration 33 Business Research – Nguyen Quoc Tuan Page CHAPTER 4: ANALYSIS AND RESULTS 34 Demographic Characteristics of the respondents 34 Reliability Analysis 34 Descriptive Statistics 35 Correlation of all variables statistics 35 Hypotheses testing .37 CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATION 40 Summary 40 Conclusion .41 Recommendations .42 REFERENCES 43 APPENDICES 46 Ø Research Questionnaire .46 Ø Test Item Mean and Standard Deviation According to Factors 50 Ø Presentation slides .52 Business Research – Nguyen Quoc Tuan Page ABSTRACT Today, employee turnover is a big problem in Vietnamese auditing firms Significant costs incurred by firms are attributed to training and hiring costs This research aims to determine the relationship between job satisfaction, organizational commitment and ethical climate to turnover intention among the external auditors in Vietnam as well as identify the current ethical climate that exists in PWC Vietnam, KPMG Vietnam, Deloitte Vietnam and Ernst & Young Vietnam (“Big 4”) Using a survey questionnaire comprising instruments about job satisfaction, organizational commitment and the ethical climate, 115 usable responses from external auditors of Big were received The Pearson moment correlation coefficient is used to test the relationship between variables The study revealed that a significant positive influence of a caring ethical climate on job satisfaction, organizational commitment as well as turnover intention existed There was also a positive significant association between ethical climate and turnover intention On the other hand, the study discovered that the instrumental ethical climate type had a significant negative relationship with organizational commitment and job satisfaction A significant negative relationship was also revealed between the independent ethical climate type and organizational commitment and turnover intention A significant negative relationship between the rules ethical climate and job satisfaction was also discovered Overall, there exists a low level of job satisfaction, commitment organization and turnover intention between external auditors in Big in Vietnam This study also implies that external auditors in Big today give utmost importance to laws, standards and codes in dealing with ethical decisions; and job satisfaction and organizational commitment as main determinants of turnover intention Keywords: auditors; ethical climate; job satisfaction; organizational commitment; turnover intention Business Research – Nguyen Quoc Tuan Page CHAPTER 1: INTRODUCTION This chapter includes the background of the study, the trends currently practiced in the industry, the issues that led to this paper, and the opportunity provided by the results of this study It also explains the researcher-designed conceptual framework based on the theories of the cognitive discrepancy theory, self-determination theory, ethical climate theory and Mobley’s model of turnover intention This chapter ends with a definition of the terms used specifically in this research Introduction Work plays a large part in the lives of millions of people Indeed, most working people nowadays spend about one third of their day at their work places, five days a week That amount of time has actually decreased in comparison with the past after many historical changes in working policies all over the world Therefore, people’s attitudes towards their work are actually very important in their perception of their life happiness (Cranny, Smith, & Stone, 1992) Overtime, audit firms have been consistently experiencing a high rate of employee turnover (Hiltebeitel & Leauby, 2001), which is defined by the Cambridge dictionary as the rate at which workers leave an organization and are replaced by new ones This statement is supported by a conducted survey cited by Omar and Ahmad (2014) about audit recruitment that indicates that only 27% of graduates are expected to stay in the auditing profession for five years or more (Accountancy Magazine, 2008) Also, according to blog of firm employment analysis (Big Four Firms Network, 2009) in 2008, the Big audit firms cumulatively would have made about 140,000 new hires to account for the loss of professionals in these firms Hiltebeitel and Leauby (2001) have provided evidence that hiring and replacing an existing employee in an international public accounting costs an estimate of 150% of that employee’s annual salary Since recruitment and training costs are usually expensive, sometimes, the costs outweigh the benefits especially when the newly-hired employee is most likely to leave the organization in just a few years The problem here is that high staff turnover can lead to an organization filled with new and inexperienced staff thus, Business Research – Nguyen Quoc Tuan Page affecting the quality of audit services provided by the firm and low quality of audit services can highly damage the profession’s reputation Intention to leave appears to be the immediate precursor to actually quitting (Schwepker, 1999) thus, it is important to determine the factors that contribute to employee turnover Some of these factors include challenging audit tasks, changes in regulations and standards, conflict-of-interest situations, excessive workload, meeting deadlines, long promotion paths, better salary, job offers and opportunities from other organizations, lack of sense of fulfilment and a negative ethical climate (Omar and Ahmad, 2014) One possible solution to this is creating an ethical climate within the organization by enacting and enforcing codes of ethics as it has been suggested as an avenue for preventing and/or deterring unethical behaviour Ethical climate brings additional benefits too such as greater job satisfaction, stronger organization commitment and lower turnover intention (Schwepker, 2001) It is implied that as long as an employee is satisfied with his job, he is most likely to stay in his organization, building a stronger organizational commitment with him These, in turn, would lead to a lower employee turnover intention between organizations Employee turnover is one of the issues concerning the auditing firms today A significant portion of costs is being attributed to training costs which are caused by high employee turnover rates As Benko & Weisberg, 2007; Becker, 2007; The Future of Work 2020, 2007 said, for companies to survive and remain competitive in the rapid expansion of the global economy, increasing advancements to modernization and technology, and keep pace with the competitors, employee retention should be given much attention and importance to business and academic communities But as the accounting profession suggests honour of public trust and integrity in performing their job competently, it would be of a hard task to determine the causes of staff leaving them Job satisfaction and turnover intention have been linked to each other; various studies have examined employee in a single or handful of occupations but there are only few that explored this relationship when it comes to a variety of occupations and industries (Medina, 2012) In addition, organizational commitment plays a crucial role with regards to turnover intention As the evidence in the research suggests about the connection of organizational culture, some scholars called for an extensive empirical research on Business Research – Nguyen Quoc Tuan Page organizational commitment that affects certain circumstances (Gregory, Harris, Armenakis & Shook, 2009) This factor has also been studied by numerous scholars with over 4,600 articles published on the topic since 1980, and has focused between organizational culture and its outcome (Hartnell, Ou & Kinicki, 2011) During ten years of working as an auditor in an audit department of a company, which is among the Big 4, the researcher had an impression of a very high turnover rate among the auditors, approximately from 70 to 80 % of recruited freshmen would drop out over a period of ten years Despite that, these four firms have been consistently placed in the Top 100 Employers list by Fortune for many years (Fortune, 2016), yet the turnover rate does not seem to decrease over time Being triggered by the interesting, observed paradox, the researcher has decided to select the community of Vietnamese people who are currently auditors or have been auditors in the past as the target population for the present research Moreover, in Vietnam, audit is regarded as one of the professions that have a very high set of requirements to fresh employees Indeed, having a Bachelor degree is a must for people who want to enter the audit profession In addition, freshmen would have to undertake many compulsory internal training courses organized by the companies in order to be effective and productive in the job Therefore, expenses for recruitment and training are significant to the audit firms As the problem arise concerning the high rate of turnover in auditing firms, this study would be beneficial in order to be familiar with certain factors that contribute to this setback in most auditing firms today This study will take a closer look on certain aspects that may have an effect on this major problem concerning the auditing industry Ethical climate, job satisfaction, and organizational commitment will be viewed in order to determine possible relationships in connection with turnover intention among external auditors By exploring these aspects, certain grounds can be established as a root of this matter thereby helping most auditing firms improve their working environment to lessen employee turnover Further studies may use this as a starting point of research concerning several other factors that might cause a high employee turnover intention in auditing firms The objective of this study is to determine the prevailing ethical climate, job satisfaction and organizational commitment in the Big auditing firms in Vietnam and know their Business Research – Nguyen Quoc Tuan Page relationship with regard to turnover intention This will be done through the giving of survey questionnaires to the external auditors of the Big through snowball sampling Knowing the variables that greatly affect turnover intention could be a call for the enhancement of the environment of the said firms to maintain a low turnover rate or prevent a high turnover rate, whichever the case is Research Questions This research was carried out in order to determine the relationship of ethical climate, job satisfaction and organizational commitment with regard to the external auditor’s turnover intention A questionnaire was given to 115 external auditors from Big namely Ernst & Young Vietnam, Deloitte Vietnam, PWC Vietnam and KPMG Vietnam This study was specifically designed to answer the following questions: ü How the external auditors from the Big Auditing firms perceive the following: ü a Job satisfaction b Organizational commitment c Ethical climate d Turnover intention What relationship exists between turnover intention and the following: a Job satisfaction b Organizational commitment c Ethical climate Theoretical Framework Turnover intention is defined as “the starting point where employees begin to consider and search for other opportunities seriously once they have intention to leave the organization” (Ponnu & Chuah, 2010) This is crucial with auditing firms given their high rates of employee turnover that affects them because of the costs incurred especially from training They cannot recover their initial investments since the employees leave Business Research – Nguyen Quoc Tuan Page ... Advisor’s signature Nguyen The Khai Business Research – Nguyen Quoc Tuan Page ACKNOWLEDGEMENT To complete this study, I have to send my special thanks to Nguyen The Khai, DBA who has... knowledge and time to learn together in order to complete this paper on time Business Research – Nguyen Quoc Tuan Page TABLE OF CONTENTS ADVISOR’S ASSESSMENT ACKNOWLEDGEMENT ABSTRACT... Statistical Treatment of Data 33 Ethical Consideration 33 Business Research – Nguyen Quoc Tuan Page CHAPTER 4: ANALYSIS AND RESULTS 34 Demographic Characteristics of the respondents