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 Accounting Research Journal
A contingency model of client repatronage in a financial auditing services context
Naruanard Sarapaivanich Paul G. Patterson
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ARJ
29,1
106
Received 18 April 2014
Revised 9 October 2014
Accepted 8 December 2014
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Accounting Research Journal
Vol. 29 No. 1, 2016
pp. 106-130
Emerald Group Publishing Limited
1030-9616
DOI 10.1108/ARJ-04-2014-0039
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1030-9616.htm
A contingency model of client
repatronage in a financial
auditing services context
Naruanard Sarapaivanich
Department of Accounting, Faculty of Business Administration,
Chiang Mai University, Chiang Mai, Thailand, and
Paul G. Patterson
School of Marketing, Australian School of Business,
University of New South Wales, Sydney, Australia
Abstract
Purpose This study aims to examine the extent to which switching costs moderates the impact of
trust, value and attractiveness of alternatives on client repatronage intentions.
Design/methodology/approach The study combines qualitative and quantitative methodologies
to create a cross-sectional survey covering four geographic regions in Thailand. Adopting a
contingency perspective, the authors examine the moderating impact of two switching costs (economic
and security) on the association among trust, value, attractiveness of alternatives and repatronage
intentions.
Findings A study of 519 small- and medium-sized enterprise (SME) clients of audit firms confirms
the main effects of trust, value and alternative attractiveness on client retention; some but not all
linkages are moderated by the costs of switching.
Researchlimitations/implications This article focuses on one specific segment (SMEs) and one
category of professional services. It would be worthwhile to extend the findings to larger firms and other
professional services.
Originality/value The study contributes to the understanding of relationship continuance among
professional services clients by shifting the focus to when and in which contingency conditions trust,
value and attractiveness of alternatives have greater or lesser impacts on repatronage intentions.
Keywords Switching costs, SME, Business-to-business services, Professional services,
Financial auditing services
Paper type Research paper
1. Introduction
Due to competition, as the globalization of business and the cost of acquiring new
customers increases, organizations increasingly focus their strategic efforts on
customer retention (Chenet et al., 2010; Jones et al., 2000). For service firms, especially
those that provide professional services, the essence of their business development
should be fostering long-term, value-laden relationships with customers (La et al., 2009;
Storbacka et al., 1994; Sweeney et al., 2011), because professional services (e.g. legal,
accounting, auditing, health, engineering consulting and project management) are
inherently relational (Sweeney et al., 2011). Yet the financial audit market is unlike other
service businesses. It preserves the transparency and improves the functioning of
capital markets (Black, 2001; Watts and Zimmerman, 1983). Unlike that for publicly
 traded companies, the supply side for small- and medium-sized enterprises (SMEs) is not Contingency
highly concentrated. In 2001, the Revenue Department passed a law that enables a model of client
certain type of Thai SMEs to be able to choose the service from tax auditors (TAs) repatronage
instead of certified public accountants (CPAs). Moreover, in December 2015, the ASEAN
Economic Community (AEC) will take effect, allowing CPAs to export their services
across ASEAN partner countries (Federation of Accounting Professions, 2014). The
AEC and emerging of TA will result in increased competition and force auditors to 107
differentiate themselves while still meeting statutory audit requirements. That is, to
retain their clients, CPAs must differentiate themselves by providing superior service
and value (Sarapaivanich et al., 2012).
Theoretically, the commitmenttrust theory of relationships (Morgan and Hunt,
1994) and the qualityvalueloyalty paradigm (Cronin et al., 2000; Reichheld, 1996)
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focus on service quality, perceived value and trust as predictors of customer retention
and loyalty. Considering the intangible nature and credence properties of professional
services (i.e. clients lack technical knowledge and expertise, and thus have difficulty
objectively evaluating the technical quality), it stands to reason that customers, or
clients, must rely on trust, built up over time, and perceptions of overall value as key
determinants of their intentions to commit to or reengage a professional service firm for
future assignments.
Scholars also have begun to focus on another client retention mechanism (Patterson,
2000), namely, the attractiveness of alternatives. When clients perceive known,
available, alternative suppliers as being fundamentally no different (e.g.
undifferentiated in service or price), they may stay with their current supplier, even
when they are not completely satisfied. For example, if SME clients view all tax
accountants as offering a similar level of service, quality and price, the likelihood of
them staying with the incumbent supplier increases (Jones et al., 2000; Sharma and
Patterson, 2000), even if they are not completely satisfied. Prior literature has
established client trust and value perceptions as determinants of client retention and
even loyalty (Morgan and Hunt, 1994; Palmatier et al., 2006); therefore, it is surprising
that scholars have largely ignored the following question:
Q1. In what contingency conditions do trust, value and attractiveness of
alternatives have stronger or weaker impacts on client retention?

This question shifts thinking from what drives repatronage intentions to when or in
which circumstances known factors influence intentions. One such contingency
condition is the cost of switching suppliers (i.e. switching barriers) (Patterson, 2000).
Switching costs represent any condition that makes it more difficult or costly for clients
to change suppliers. Although many works in accounting literature have studied the
causes and consequences of auditor switching (Stefaniak et al., 2009), none have
explicitly examined the costs of switching or switching barriers, particularly in an SME
context. Thus, the central purpose and contribution of this study is to examine the extent
to which switching costs moderates the impact of trust, value and attractiveness of
alternatives on client repatronage intentions. The study pertains to the context of SMEs
that have engaged the services of a professional financial audit firm in an emerging
Southeast Asian nation, Thailand.
 ARJ 2. Literature review
29,1 2.1 The SME context
In terms of output, employment and effective utilization of regional resources, SMEs
make substantial contributions to the Thai (and most world) economy. Accordingly,
SMEs are at the heart of the countrys strategy to transform Thailand into a competitive,
dynamic, knowledge-based economy. They make up the majority of businesses in the
108 country. According to the Department of Industrial Promotion, in 2010, there were 2.91
million SMEs in Thailand, comprising 99.6 per cent of all enterprises (Office of Small
and Medium Enterprises Promotion, 2013). The Institute for Small and Medium
Enterprises Development (2013) classifies SMEs as medium-sized or small enterprises,
in terms of both number of employees and amount of fixed assets. Appendix 1 contains
the criteria we employed to define SMEs in Thailand.
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To ensure the quality of accounting information, Thailand requires SMEs operating

as limited partnerships, registered ordinary partnerships or company limited formats to
purchase audit services from a CPA for their annual financial statements (Department of
Business Development, 2014). In 2001, the Revenue Department passed a law that
allowed Thai SMEs that function under limited and registered ordinary partnership
forms and have a registered capital of less than 5,000,000 Thai Baht (approximately
US$156,000), revenue in one fiscal year of less than 30,000,000 Baht (US$940,000) and
total assets less than 30,000,000 Baht (US$940,000) to choose the audit services of a TA
or a CPA (Tax Auditor Association of Thailand, 2014). Both TAs and CPAs are
appointed by the partners or shareholders of a partnership or company at an annual
general meeting. Unlike the case of publicly traded companies, mandatory audit firm
rotation practices are not imposed on Thai SMEs, which typically feature no separation
of ownership and management control.

2.2 The nature of professional business services

Unlike consumer products and non-professional, experiential services targeted at
consumers (e.g. hospitality, fitness training, vacations, theater and movies), financial
auditing services are typical of professional business services, in that they are
technically complex and customized, and they rely heavily on the expertise,
independence and competence of the professional conducting the audit (Broberg et al.,
2013; Duff, 2009; Hellman, 2006). The audit process entails a continuous stream of
service encounters with the client, during which the auditor has an opportunity to remix
the service offering and add value in interactions with clients (Dyer and Ross, 2007;
Herda and Lavelle, 2013). By demonstrating that they have taken time to understand a
clients business, having (and communicating) a clear plan for the audit process, being
responsive and reliable, displaying independence and an understanding of the issues
and keeping the client informed, professionals can add value to the relationship (Duff,
2004, 2009).

2.3 Trust, value, attractiveness of alternatives and switching costs

Trust holds an important position in society in general (Tullberg, 2008) and is a central
component of any relationship, interpersonal or business. Trust also occupies a pivotal
position in Morgan and Hunts (1994) model of relationship commitment. It is a
necessary ingredient for long-term buyerseller relationships that reflects a willingness
to rely on an exchange partner (Doney and Cannon, 1997; Palmatier et al., 2006). Trust
 represents a leap of faith, emerges over time and exists when there is sufficient Contingency
confidence in a partners reliability and integrity. In essence, trust captures the belief model of client
that the seller will meet its promised obligations. We contend that trust takes on added
importance in a professional services context, because clients typically do not possess
repatronage
the technical skills or knowledge to confidently evaluate audit deliverables. As Francis
(2004, p. 365) notes, perceptions are very important with respect to auditor credibility,
particularly since audit quality is difficult to directly observe. 109
The client-perceived value entered the spotlight with the introduction of the notion of
value co-creation that is, both the supplier and customer have integral roles in creating
value (Vargo and Lusch, 2008). Traditionally, researchers have defined value as the ratio
of total perceived benefits to perceived sacrifices (financial and non-financial). Zeithaml
et al. (1988, p. 14) define it as the consumers overall assessment of the utility of a
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product (service) based on what is received and what is given. Perceptions of value
subsume client assessments of technical and service quality (in an auditing context,
Duff, 2004, 2009). Therefore, the service and technical quality are direct antecedents of
value perceptions (Cronin et al., 2000; Sweeney et al., 2011) and not the explicit focus of
the current study. Various empirical studies show that value is a key driver of client
repatronage intentions and loyalty (Cronin et al., 2000; La et al., 2009; Lam et al., 2004).
Finally, business literature indicates that an awareness of a range of competing
suppliers, and their attractiveness, relates to repatronage intentions in different service
industries (Sharma and Patterson, 2000), though this aspect has yet to be studied in a
financial auditing context. We examine this construct as another potential antecedent of
audit clients repatronage intentions.
Rather than a one-size-fits-all approach to model building, we deem a contingency
approach more appropriate to explain the impact of drivers of client repatronage
intentions (La et al., 2009). The contingency approach has its origin in organization
studies (Lawrence and Lorsch, 1967), and its core proposition is that there is no one best
way to operate; the optimal choice depends on external factors and the situation facing
the organization. The contingency approach has gained widespread acceptance and use
in various business disciplines (Bharadwaj et al., 1993; Patterson, 2000). When
considering a switch in service suppliers, a client faces various setup and takedown
costs (Jones et al., 2000). These switching costs can be categorized as psychological
(perceptions of risk), physical or economic (financial). Although switching costs have
been studied in a consumer services context, little scholarly work has examined their
impact in a professional services context, in which they might be more relevant because
of their credence properties. In this study, we examine two contingency factors
(moderators) economic and business security (risk) switching costs which we predict
will moderate the relationships among trust, value, attractiveness of alternatives and
client intentions to reengage a financial audit firm.

3. Research model and hypotheses

Trust implies an awareness of being vulnerable to being exploited and dependent on the
trustee. Rousseau et al. (1998, p. 395) defines trust as a psychological state comprising
the intention to accept vulnerability based upon positive expectations of the intentions
or behavior of another. Trust is an essential element of social life and business
relationships, in that it captures the belief that the supplier will honor its obligations and
deliver what was promised. Long-term relationships develop and become cemented as
 ARJ trust reduces both uncertainty and the likelihood of opportunistic behavior (Chenet et al.,
29,1 2010). Empirical studies in both business-to-business and business-to-consumer
contexts indicate that trust is central to predicting loyalty, behavioral intentions and
commitment (Chenet et al., 2010; Morgan and Hunt, 1994; Palmatier et al., 2006).
Auditors knowledge of accounting and auditing procedures is crucial for the quality of
the audit (Beattie et al., 1999; DeAngelo, 1981), and SME clients are unlikely to possess
110 the professional knowledge to assess the quality of what they have received, which is
difficult to observe directly (Francis, 2004; Sarapaivanich and Patterson, 2015). Thus,
they have little alternative but to trust their audit firm. It therefore stands to reason that
increased levels of trust associate positively with a clients likelihood of reengaging the
incumbent audit firm. Therefore:
H1. Trust is positively associated with client repatronage intentions.
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Both consultants and researchers have devoted considerable attention to the link
between value and loyalty in the past two decades. Empirical research confirms the
positive association between value and loyalty, predominantly in consumer products
and services contexts (Grewal et al., 2003; Lam et al., 2004; Sharma and Patterson, 2000).
Prior research also suggests a positive relationship between clients perceptions about
the quality of audit service and the clients intention to remain loyal to the incumbent
audit firm (Behn et al., 1997; Pandit, 1999; Williams, 1988). However, little empirical
evidence is available in an SME context, though it seems logical that previous research
results might be extrapolated to this context.
Woodruff (1997, p. 139) describes perceptions of value as the next source of
competitive advantage. Understanding the link between clients perception of value,
which in turn leads to repatronage intentions and loyalty, is a fundamental issue in
contemporary business, because it provides the connection between business
development practices and financial performance (Cretu and Brodie, 2007).
Furthermore, focusing on the perceived value rather than client satisfaction or service
quality is more effective; research shows that value subsumes both constructs and is a
better predictor of loyalty (Cronin et al., 2000; La et al., 2009). Clients perceptions of value
are derived from a trade-off between the benefits received (i.e. perception of the core
service and service quality) and costs (i.e. price and non-financial costs). The perceptions
of the benefits of product and service quality are not limited to functional aspects
(physical attributes, service attributes and technical support) but can also include
emotional components, so both cognitive and affective components can be incorporated.
Accordingly:
H2. Clients perceptions of value are positively associated with repatronage
intentions.
The attractiveness of alternatives is conceptualized as the clients estimate of the likely
satisfaction available from an alternative relationship (Ping, 1993). Research suggests
that the unavailability of attractive alternative offerings is a favorable situation to keep
customers. Jones et al. (2000) indicated that the existence of available alternatives (or the
lack thereof) is a key factor in defining dependence. In other words, if customers are
either unaware of alternatives or simply do not perceive them to be any more attractive
(in terms of price, service levels or quality) than the current service supplier, they likely
stay in that relationship, even when it is less than satisfactory. When clients perceive
 little product differentiation across suppliers, inertia sets in, and there is little incentive Contingency
to switch. In the current study context, due to their cost constraints, SMEs typically use model of client
small- or medium-sized accounting firms, rather than, for example, the Big Four
(Deloitte, KPMG, PricewaterhouseCoopers and Ernst & Young) to conduct their
repatronage
financial audits. The legal restrictions on advertising suggest that SME clients likely
perceive little differentiation among competing audit firms. However, if some
alternative suppliers appear more attractive (i.e. highly differentiated), some clients 111
should be enticed to seek out a more attractive proposition from a competing auditor.
Thus, if incumbent audit firms do not sell themselves effectively, they may lose their
clients (Beattie and Fearnley, 1995; Behn et al., 1997; Hackenbrack and Hogan, 2005). In
Thailand, because financial audits are government mandated, SMEs are sensitive to
price, and awareness of a lower-priced competitor could entice them to switch suppliers.
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The more attractive the alternative, the less likely a client is to stay with its current
auditor. Accordingly:
H3. Attractiveness of alternatives is negatively associated with client repatronage
intentions.
When clients switch service providers, they incur psychological (risk), emotional, search
effort (time) and even economic (financial) costs. We conceptualize switching costs as
the perception of the magnitude of the additional costs required to terminate a
relationship and secure an alternative one (Sharma and Patterson, 2000). To date, extant
research has not investigated the costs a client incurs to switch auditors (or switching
barriers) in a financial auditing context. Rather, the focus has been on the causes and
consequences of auditor switches (Chow and Rice, 1982; Lu, 2006; Stefaniak et al., 2009;
Woo and Koh, 2001). Little scholarly work in service industries has investigated the
moderating impact of switching costs (Sharma and Patterson, 2000) on the association
among trust, value, attractiveness of alternatives and repatronage intentions. In this
study, we capture two categories of switching costs relevant to SME clients: economic
and business security. We operationalize economic switching costs as the time and
financial costs it would take to secure another suitable auditor, and business security
costs represent the risk (psychological cost) that others will have knowledge of, and
access to, the SMEs confidential financial records.
Ping (1993) regards the time and financial costs of searching for a suitable
replacement auditor as a setup cost. When clients perceive economic switching costs to
be high, they are more inhibited in switching if they perceive trust as less than what they
expected. In other words, they are prepared to satisfice rather than maximize the levels
of trust they seek. We make a similar argument for security costs. When the SME client
is concerned about another auditor having knowledge of its confidential business
information, trust takes on added importance in client retention. Thus:
H4. (a) Economic and (b) security switching costs moderate the impact of trust on
client repatronage intentions.
It is often difficult for SMEs to make comparisons among competing service suppliers
(auditors), due to the intangible nature of professional services and because audit
quality is difficult to observe directly. This difficulty is compounded because, unlike for
physical goods, it is impossible to try out or inspect the core service that a new supplier
offers in advance of purchase. How, for example, does a client try out the core service of
 ARJ a new dentist, financial planner or management consultant in advance of signing a
29,1 contract? Word of mouth and other surrogates (tangible cues) must be evaluated to
assess likely service quality. Search costs can be considerable and include the effort,
inconvenience and money involved in searching for an acceptable alternative supplier.
Thus, even when an SME client is less than completely satisfied with the value it
receives, the firm may stay in the relationship simply because the economic and
112 psychological costs of changing are perceived to be high. We make a similar argument
for security costs. In this study, the incumbent supplier (audit firm) has an intimate
knowledge of not only the SME clients financial position but also its strategic insights
and confidential knowledge of its competitive strengths, weaknesses and business
strategy. This information is likely to be highly sensitive and thus represent a
psychological barrier (perceived risk) to exiting the relationship with the audit firm,
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even if the relationship is sometimes less than ideal. On the basis of the preceding
discussion, we hypothesize:
H5. (a) Economic and (b) security switching costs moderate the impact of the
perceived value on client repatronage intentions.
As noted previously, we expect that when potential clients view alternative suppliers as
differentiated and more attractive (e.g. offering a wider range of services, location
convenience, lower costs, more reliability and higher levels of client service), some
clients search for a more attractive deal. That is, the association between attractiveness
of alternatives and client retention is negative. However, other clients may perceive that
switching barriers leave them captive to a particular supplier (Patterson and Smith,
2003) and so come to resent the supplier. Even if they are less than happy, they are
unable to switch suppliers. We contend that when clients view both economic and
security switching costs as high, they focus on what competing audit firms might offer
if they were to switch. Accordingly:
H6. (a) Economic and (b) security switching costs moderate the influence of
attractiveness of alternatives on client repatronage intentions.

3.1 Control variables

To provide a more robust test of our hypotheses, we included length of patronage
(number of years the client has been engaging the current audit firm), firm size (number
of employees), involvement (degree of SME clients participation in audit process), audit
firm reputation and age of the business as control variables for repatronage intentions.
Logically, we expect an incumbent auditor to exhibit a greater length of patronage,
involvement, reputation and age of the business, factors associated with repeat
purchase intentions, though these variables are not our focus. Moreover, larger firms are
more likely to have qualified accountants, and thus be in a better position to judge value
objectively, which could influence repatronage intentions.

4. Methodology
The study combines both qualitative and quantitative methodologies to create a
cross-sectional survey covering four geographic regions in Thailand. In the initial
stages, we conducted in-depth interviews with SMEs and auditors to gain insight into
the relevance of and extent to which trust, perceived value and attractiveness of
competitors offering influenced a client to continue its relationship with an auditor.
 Moreover, we discussed switching costs with respondents to understand the extent to Contingency
which they influence the choice of an audit firm. The interviews largely confirmed our model of client
prior thinking. We then developed a survey instrument, drawing from the interviews
and previous-related literature.
repatronage

4.1 Sample
The cross-sectional survey produced valid responses from 519 incorporated SMEs,
which are required by law to comply with an official annual financial audit. Data
113
collection was restricted to the five provinces that have the greatest concentration of
SMEs in Thailand. To increase the response rate, we collected the data using a
structured questionnaire, which trained interviewers personally administered.
Therefore, the non-response rate was only 10.7 per cent. We adopted convenience
sampling to overcome time and resource limitations. The data obtained from Bangkok,
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Nontaburi, Chiang Mai, Chonburi and Suratthani provinces were proportional to the
number of SMEs in each province.
To address our research questions, we ensured that the key informant (respondent) in
each case was the owner, a partner or, in some instances, a manager intimately involved
with the business and the audit selection process. We excluded SMEs in which the
bookkeeping service firm chose the audit firm. (In Thailand, an SMEs bookkeeping
service provider sometimes uses its audit arm for a client.) To check for non-response
bias, we compared the answers from late respondents (approximately 18 per cent of the
final sample) with the balance of respondents on key constructs to detect any
differences. We detected no differences on two demographic measures at the p 0.05
level. This finding, together with the respectable overall response rate, indicates that the
danger of non-response bias is quite low (Armstrong and Overton, 1977).

4.2 Instrument development

We employed a multistage method to develop the final questionnaire. In addition to the
literature review, we conducted five in-depth qualitative interviews with SME owners
and five interviews with auditors in two provinces before the questionnaire
development. Our aim was to confirm the relevance of trust, value and attractiveness of
alternatives in influencing the decision to reengage (or not reengage) an auditor. More
important, we sought to explore the relevance of economic and security costs as
switching barriers. We then used this information in conjunction with prior literature to
develop items for the constructs contained in the questionnaire. We pre-tested the final
questionnaire with a further five SME owners.

4.3 Respondent profile

Tables I-III present profiles of the final sample. The profile reflects a skew toward small
enterprises (57 per cent had fewer than 26 employees and 33 per cent had fewer than 16
employees), and 77.2 per cent of respondents indicated a market value of their fixed
assets of less than 50 million Thai Baht (US$1,562,000). We also observed a bias toward
experienced enterprises: 55 per cent had been in operation for 10 years or more.
However, we detected no statistically significant differences on key variables
(repatronage intentions, trust, value and attractiveness of alternatives) for two business
experience groups (less and more than 10 years) at the p 0.05 level. The profile of the
sample is consistent with a national profile of SMEs in Thailand (Institute for Small and
Medium Enterprises Development, 2013).
 ARJ 4.4 Measures
29,1 We adapted the measures for repatronage intentions, attractiveness of alternatives and
economic and security switching costs from La et al. (2009), Sharma and Patterson (2000)
and Jones et al. (2000), as well as our qualitative interviews. The measures for trust and
value were single-item measures typically used in prior literature (Patterson and
Spreng, 1997). We subjected all multi-item constructs to scale purification using
114 confirmatory factor analysis (CFA) (Appendix 2). Initially, we established the
unidimensionality of the four constructs (repatronage intentions, attractiveness of
alternatives and economic and security switching costs). The Cronbachs values for
the four constructs were respectable: 0.69, 0.88, 0.74 and 0.79, respectively. There were
no standardized residual covariances greater than 2.99. Next, we assessed an overall
measurement model comprising the four constructs using CFA. We considered each
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scale simultaneously in the model to test for convergent and discriminant validity. We
tested the hypothesized models using AMOS software. The overall model fit statistics
indicated a 2/df 3.25, p 0.00, goodness-of-fit index 0.98, adjusted goodness-of-fit
index 0.94, comparative fit index 0.98, root mean residual 0.36, root mean square

Employees n (%)

15 or fewer 173 33.3

16-25 123 23.7
26-30 80 15.4
31-50 65 12.6
Table I. 51-200 72 13.9
Number of 200 6 1.2
employees Total 519 100.0

Value of fixed assets n (%)

5 million Baht (US$156,000) 77 14.8

5-10 million Baht (US$156,000-312,000) 94 18.2
11-30 million Baht (US$312,001-937,000) 148 28.6
31-50 million Baht (US$937,001-1,562,000) 81 15.6
51-60 million Baht (US$1,562,001-1,875,000) 73 14.0
Table II. 60 million Baht (US$1,875,000) 46 8.8
Value of fixed assets Total 519 100.0

Years in operation n (%)

0-2 29 5.6
3-6 79 15.2
7-10 123 23.7
Table III. 10 288 55.5
Age of business 519 100.0
 error of approximation 0.07 and normed fit index 0.97. All statistics provided sound Contingency
support for the measurement model. model of client
4.5 Validity and reliability
repatronage
The composite reliabilities for all four measures are greater than 0.7 (Table IV). In
addition, the average variance extracted (AVE), which measures the amount of variance
that a latent construct captures from its indicators, is greater than 0.6 for all measures. 115
To assess whether the constructs are distinct, we used the procedure described by
Fornell and Larcker (1981). As an indication of convergent and discriminant validity, the
square root of the AVE for each construct should be higher than the correlation between
that construct and any other construct, which was the case. Thus, the constructs are
discriminant. Table V presents a correlation matrix.
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We captured the items measuring trust (Current auditor is trustworthy) and value
(For the audit we received, the fee for the audit was appropriate) on five-point Likert
scales. We established face validity by showing all scales to three marketing and
management academics and five SME owners, who all agreed that the items captured
the essence of the constructs. Using single-item measures in circumstances in which the
measures capture the essence of the construct is consistent with Rossiters (2002;
Rossiter and Braithwaite, 2013) call for more parsimonious measures.

4.6 Analysis
We used regression analysis to examine H1H3. For the moderator hypotheses (H4, H5
and H6), we used subgroup analysis (Kohli, 1989; Patterson, 2000), which is readily

Factor Composite
Variable loading reliability AVE

Repatronage intentions 0.75 0.61

I am not looking for a new auditor 0.75
I intend to continue using the current auditing service 0.71
Attractiveness of alternatives 0.86 0.67
I might change auditors if the audit fee of new auditor is 0.83
cheaper than the current one
I might change auditors if the location of new auditors 0.92
office is easier to access than the current one
I might change auditors if the new auditor provides a full 0.77
function service (such as consulting and bookkeeping)
more than the current one
Economic switching costs 0.83 0.72
I have to spend a lot of money to get a new auditor 0.95
I have to spend a lot of time to search for a new auditor 0.62
Security switching costs 0.83 0.71
I am concerned that changing to a new auditor is adding 0.82 Table IV.
to the number of people who know about my business Composite reliability
and financial position and average variance
If I change auditor, it is going to take time before a new 0.79 extracted (AVE) of
auditor is able to understand my business latent variables
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116

Table V.
Correlation matrix
Construct RI TRUST PV AA LP SIZE INV REP Age ESC SSC

RI (0.779)
TRUST 0.346** (1.000)
PV 0.401** 0.184** (1.000)
AA 0.445** 0.217** 0.422** (0.817)
LP 0.245** 0.189** 0.047 0.313** (1.000)
SIZE 0.062 0.002 0.129** 0.050 0.107* (1.000)
INV 0.006 0.186** 0.176** 0.107* 0.030 0.083 (1.000)
REP 0.077 0.127** 0.023 0.070 0.030 0.249** 0.185** (1.000)
Age 0.039 0.129** 0.054 0.145** 0.377** 0.297** 0.034 0.196** (1.000)
ESC 0.160** 0.041 0.280** 0.242** 0.055 0.142** 0.097* 0.136** 0.117** (0.848)
SSC 0.156** 0.008 0.269** 0.211** 0.023 0.122** 0.145** 0.123** 0.166** 0.466** (0.841)

Notes: The diagonal values, in parentheses, bold values indicate the square root of the average variance extracted. RI repatronage intentions; PV
perceived value; AA attractiveness of alternatives; LP length of patronage; SIZE firm size; INV involvement; REP reputation; Age age of
business; ESC economic switching costs; SSC security switching costs ** p 0.01; * p 0.05
 interpretable. For the subgroup analysis, we repeated the ordinary least squares Contingency
regression analysis in subgroups with low and high scores on the two moderator model of client
variables (economic and security switching costs). Our goal was to split the total sample
at the median into two groups based on low and high groups for each moderator variable
repatronage
to reflect approximately the top and bottom 45 per cent of cases each. We omitted the
middle 15 per cent to increase the contrast between groups (Kohli, 1989). We then
performed the Chow (F) test (Chow, 1960) to assess any significant differences in the 117
form (slope) of the regression models. The Chow test is an omnibus test that determines
whether an overall difference exists in parameter values between groups, but does not
evaluate the significance of individual estimates. We used t-tests for this purpose.
Tables VI-VIII present the results of the subgroup analysis (Figure 1).
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5. Results
The normal probability plot and a quantile quantile plot illustrate that the data were
normally distributed. To check multicollinearity, we examined the tolerance factor and
the variance inflation factor. The results indicated no multicollinearity problems, in that
all the results were well within the acceptable limits (Greene, 1997). Moreover, the
correlation matrix in Table V confirms that multicollinearity problems did not exist.
Next, the DurbinWatson value was approximately 2 (1.9), indicating that the residuals
were independent and thus there was no residual autocorrelation. We then proceeded to
run a multiple regression analysis to examine the main effects of trust, value and
attractiveness of alternatives on repatronage intentions.
For the moderator hypotheses, we performed a Chow test (Chow, 1960; Kohli, 1989) to
determine the differences in the form (or slope) regression model across each of the pairs
of high and low subgroups. Our aim was to examine whether an overall difference
existed in parameter values between groups. If we noted a difference, we used unpaired
t-tests to verify significant differences in the individual regression coefficients.
Tables VII and VIII present the results.

5.1 Determinants of client repatronage intentions

The results of the regression analysis in Table IX reveal that trust ( 0.236, p 0.00)
and client perceptions of value ( 0.289, p 0.00) are significant, positive predictors

Low subgroup High subgroup

Economic switching costs Minimum Maximum Mean SD Minimum Maximum Mean SD

Repatronage intentions 2.00 5.00 3.89 0.72 2.50 5.00 4.19 0.74
Trust 2.00 5.00 3.98 0.74 2.00 5.00 4.04 0.70
Perceived value 1.00 5.00 3.33 0.82 1.00 5.00 3.86 0.94
Attractiveness of alternatives 1.33 5.00 3.41 0.88 1.00 5.00 2.97 1.06
Security switching costs
Repatronage intentions 2.50 5.00 3.80 0.71 2.00 5.00 4.11 0.84
Trust 2.00 5.00 3.97 0.75 2.00 5.00 4.01 0.76
Perceived value 1.00 5.00 3.22 0.76 1.00 5.00 3.76 0.98
Attractiveness of alternatives 1.33 5.00 3.47 0.87 1.00 5.00 3.04 1.18
Table VI.
Note: SD standard deviation Descriptive statistics
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118

Table VII.
Unstandardized
parameter estimates
Sample type TRUST PV AA LP SIZE INV REP Age Adjusted R2 Chow test (F)

Total sample
coefficient 0.247*** 0.241*** 0.188*** 0.030*** 0.169*** 0.093*** 0.046 0.039 34.1%
Mean 3.99 3.59 3.22 5.62 1.28 3.46 3.21 3.29
SD 0.72 0.91 0.98 3.54 0.45 0.81 0.76 0.92
t-value 6.07 6.99 5.71 3.44 2.55 2.54 1.12 1.14
p-value 0.00 0.00 0.00 0.00 0.01 0.01 0.24 0.25
Economic switching costs
Low group (n 207)
coefficient 0.191*** 0.230*** 0.134** 23.5% 16.51***
Mean 3.98 3.33 3.41
SD 0.74 0.82 0.88
t-value 2.99 3.89 2.27
p-value 0.00 0.00 0.02
High group (n 246)
coefficient 0.272*** 0.212*** 0.183*** 33.9% 16.51***
Mean 4.04 3.86 2.97
SD 0.70 0.94 1.06
t-value 4.46 4.37 4.00
p-value 0.00 0.00 0.00
Security switching costs
Low grou (n 157)
coefficient 0.406*** 0.064 0.039 29.9% 39.49***
Mean 3.97 3.22 3.47
SD 0.75 0.76 0.87
t-value 6.03 0.91 0.64
p-value 0.00 0.37 0.52
(continued)
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Sample type TRUST PV AA LP SIZE INV REP Age Adjusted R2 Chow test (F)

High group (n 181)

coefficient 0.222*** 0.238*** 0.231*** 41.4% 39.49***
Mean 4.01 3.76 3.04
SD 0.76 0.98 1.18
t-value 2.86 3.84 3.91
p-value 0.01 0.00 0.00

Notes: Dependent variable: repatronage intentions; PV perceived value; AA attractiveness of alternatives; LP length of patronage; SIZE firm
size; INV involvement; REP reputation; Age age of business *p 0.10; ** p 0.05; *** p 0.01

Table VII.
119
repatronage
model of client
Contingency
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29,1
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120

Table VIII.
Standardized
parameter estimates
Sample type TRUST PV AA LP SIZE INV REP Age Adjusted R2

Total sample 0.236 *** 0.289 *** 0.246 *** 0.143 *** 0.101 *** 0.097 *** 0.046 0.048 34.1%
ESC
Low (n 207) 0.197 *** 0.263 *** 0.165 ** 23.5%
High (n 246) 0.257 *** 0.266 *** 0.257 *** 33.9%
SSC
Low (n 157) 0.428 *** 0.069 0.047 29.9%
High (n 181) 0.197 *** 0.278 *** 0.323 *** 41.4%

Notes: Dependent variable: repatronage intentions; ESC economic switching costs; SSC security switching costs; PV perceived value; AA
attractiveness of alternatives; LP length of patronage; SIZE firm size; INV involvement; REP reputation; Age age of business *p 0.10; ** p
0.05; *** p 0.01
 Control Variable
- Length of patronage
Contingency
- Firm Size model of client
Economic Security repatronage
Switching Costs Switching Costs

H4a H5a H6a H4b H5b H6b

121
H1 (+)
Trust

Client
Repatronage
H2 (+)
Perceived Value Intenons
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H3 ()
Aracveness
of Alternaves

Control Variable
- Involvement Figure 1.
- Reputaon Conceptual model
- Age of business

Predictor variables Estimate Standard error t p

Trust 0.236 0.041 6.07 0.000

Perceived value 0.289 0.034 6.99 0.000
Alternative of attractiveness 0.246 0.033 5.71 0.000
Length of patronage (control variable) 0.143 0.009 3.44 0.001
Firm size (control variable) 0.101 0.066 2.55 0.011
Involvement (control variable) 0.097 0.036 2.54 0.011
Reputation (control variable) 0.046 0.039 1.18 0.237
Age of business (control variable) 0.048 0.034 1.14 0.253
F 32.996***
R2 0.352
Adjusted R2 0.341 Table IX.
Summary of
Note: Dependent variable: repatronage intentions *** p 0.01 regression results

of client repatronage intentions. Thus, as H1 and H2 predict, increasing client trust and
perceptions of value raises the likelihood of retaining the current audit firm, with each
construct having a similar impact. Moreover, Table IX shows that, as predicted,
attractiveness of alternatives is negatively associated ( 0.246, p 0.00) with
repatronage intentions; the more clients are aware of equally good audit firms, the less
likely they are to remain loyal to their current auditor. Therefore, our data support H1,
H2 and H3. While not formally hypothesized, three control variables have statistically
significant impacts on repatronage intentions: length of patronage ( 0.143, p 0.00)
 ARJ has a significant positive impact and firm size ( 0.101, p 0.01) and involvement
29,1 ( 0.097, p 0.01) have negative impacts. In contrast, reputation and age of
business have no statistically significant impacts on repatronage intentions. The total
variance explained by the regression model is a respectable 34.1 per cent.

5.2 Impact of moderator variables

122 Tables VII and VIII prompt several important observations. Initially, in examining the
moderating effects of economic switching costs, the Chow test (F 16.51, p 0.00)
indicates statistically different slopes for the two regression equations with an adjusted
R2 of 33.9 per cent in the high switching condition versus only 23.5 per cent in the low
condition. However, the t-test does not reveal any significant differences between
intentions and trust and value in different switching cost conditions. Thus, our data do
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not support H4a and H5a. As predicted though, the negative impact of attractiveness of
alternatives on client repatronage intentions is moderated by economic switching costs
(t 1.75, p 0.10), in support of H6a. Attractiveness of alternatives has a larger
negative impact in high-economic switching cost conditions ( 0.257 versus 0.165
in the low condition, p 0.10). Next, regarding the moderating impact of security
switching costs, the Chow test indicates significantly different slopes in the regression
models for low and high switching cost conditions (F 39.49, p 0.00). Consistent with
H4b and H5b, security switching costs moderate the influence of trust (t 3.18, p 0.01)
and perceived value (t 3.14, p 0.01) on client repatronage intentions. The results
(Table VII) suggest that when clients are concerned about financial information
security, the link between trust and repatronage intent is stronger in the low-security
condition ( 0.428 low, 0.197 high). However, the link between perceived value
and repatronage intent is stronger in the high-security cost condition ( 0.278 vs
0.069). Finally, and as predicted in H6b, the influence of attractiveness of alternatives on
client repatronage intentions was moderated by security switching costs (t 4.64, p
0.001), with attractiveness of alternatives having a 0 coefficient of 0.323 in the high
condition and 0.047 in the low condition. The explained variance (R2) is 41.4 per cent
in the high switching costs condition versus 29.9 per cent in the low switching costs
condition, reinforcing the argument that the impacts of trust, value and alternative
attractiveness vary with different security switching cost conditions. Table X presents
a summary of the results of these hypotheses tests.

6. Discussion and conclusions

The results reported here are consistent with Morgan and Hunt (1994) and Palmatier
et al.s (2006) trust commitment relational model. Furthermore, the study contributes to
the understanding of relationship continuance among professional services clients by
shifting the focus to when or in which contingency conditions trust, value and
attractiveness of alternatives have greater or lesser impacts on client repatronage
intentions.
By examining the impact of the attractiveness of alternative suppliers (i.e. available
competition), we extend the basic tenets of that model to the context of SME professional
services, and financial audit firms in particular. In terms of direct effects, clients trust in
their auditor, their perceptions of the auditors value and their perceptions of the
attractiveness (fees, accessibility and customer service) of known competing auditors all
have similar impacts on the likelihood of staying with their current audit firm. Trust,
 Hypotheses Results
Contingency
model of client
H1. Trust is positively associated with client repatronage intentions Supported repatronage
H2. Client perceptions of value are positively associated with Supported
repatronage intentions
H3. Attractiveness of alternatives is negatively associated with Supported
client repatronage intentions
H4a. The economic switching costs moderate the influence of trust Not supported
123
on client repatronage intentions
H4b. The security switching costs moderate the influence of trust Supported
on client repatronage intentions
H5a. The economic switching costs moderate the influence of Not supported
perceived value on client repatronage intentions
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H5b. The security switching costs moderate the influence of Supported

perceived value on client repatronage intentions
H6a. The economic switching costs moderate the influence of Supported
attractiveness of alternatives on client repatronage intentions Table X.
H6b. The security switching costs moderate the influence of Supported Hypotheses test
attractiveness of alternatives on client repatronage intentions results

value and alternative attractiveness each exhibited equivalent impacts on repatronage

intentions, with standardized coefficients of 0.236, 0.289 and 0.246, respectively. From
a managerial perspective, though trust is fundamental to any business relationship, it is
especially so for professional services, in which setting SME clients, unlikely to possess
appropriate knowledge or expertise, cannot confidently assess an audits technical
quality. As Morgan and Hunt (1994) note, trust exists only when there is sufficient
confidence in a partners reliability and integrity. Francis (2004) also highlights that
auditor competence and quality are difficult to observe and SMEs have limited or no
technical expertise in the auditing process, so the need for a trusted auditor is crucial.
Partners and managers of audit firms must realize that trust builds only over time.
Moreover, it can be destroyed with a single seemingly opportunistic behavior or act
signaling unreliability. Firms that aim to have long-term relationships with their SME
clients would do well to keep in mind that long-term relationships must be nurtured to
reduce clients perceptions of risk and uncertainty. Therefore, partners and associates
working on an audit must at all times act with honesty and integrity, be reliable in
meeting deadlines, be ready to answer questions, show enthusiasm in providing
suggestions and keep business information confidential.
Furthermore, our results highlight two important switching barriers (costs) that
SMEs consider before switching. First, SMEs consider security switching costs; that is,
they have concerns that the incumbent auditor, after exiting the relationship, will still
have knowledge of the firms financial position, and thus need to be trusted not to
opportunistically use that information. Any newly appointed auditor also will have
access to the firms financial information. Thus, trust takes on added importance in
client retention efforts, suggesting that SME clients are more likely not to switch
auditors, in an effort to avoid granting more people access to their business affairs. If
during the audit process, the audit partner is able to assess the importance or perceived
risk a client attaches to security switching costs, the partner would have a signal of the
importance that trust will play in the clients selection of an auditor in the following year.
 ARJ With this in mind, the audit partner should monitor levels of trust, even if qualitatively,
29,1 through regular meetings with the client.
Second, SMEs expressed concerns about the time and effort involved in securing a
new, trustworthy auditor and the length of time it would take an alternative auditor to
understand their business (economic switching costs). Therefore, an incumbent auditor
should regularly monitor client satisfaction and value perceptions, and firms aiming to
124 win new business should signal to potential SME clients that the process will be
seamless and expeditious.
Next, value can mean different things to different clients. To some clients, value
may equate to low fees, especially if the only reason they undertake the audit is in
response to a statutory requirement. Other clients may view the audit as an opportunity
to have an independent third party provide advice on their financial affairs, verify that
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their financial transactions are true and fair, comply with General Accepted Accounting
Principles, detect errors and fraud (though fraud detection is not the main purpose of an
audit) and uncover areas for improvement. For these clients, value means a
high-quality audit. Another segment could value the range of value-added services that
the auditor might provide, such as an in-depth knowledge of their industry, potential
financial issues that might arise in the future or best practices in specific financial
management areas. Still other clients may place value on a full range of services, which
could include management and tax consulting, bookkeeping and legal services, etc. In
other words, audit firm managers should consider segmenting the SME market
according to the services or benefits sought by different client segments and then
customize the value-added services that would supplement the core service that is, the
financial audit report.
Attractiveness of alternatives represents the extent to which clients are aware of
other competing audit firms and whether they view them as being any more attractive
in terms of price, reliability, client service, industry knowledge and other supporting
services than their current auditor. Our results indicate that this variable has a
significant negative impact on intentions to reengage the incumbent auditor, equivalent
to the positive impacts of trust and value. Thus, the incumbent auditor should not
automatically assume that the clients will be engaged the following year. The
incumbent auditor should continually seek to understand the needs of its clients, beyond
the core audit process and report. Part of the job specifications of the audit team must be
to engage with the client and find areas, during the audit process, in which further value
might be added. Endeavoring to make clients sticky (i.e. reluctant to switch) should
be uppermost in mind. For example, previous research have shown that in many service
industries, establishing strong rapport or interpersonal relationships with the owner of
SMEs or key influencers is a powerful way to retain clients (Dagger and Meredith, 2012;
Patterson and Smith, 2003). In these conditions, clients do not seek out, and so are largely
unaware of, competing suppliers, thus insulating the incumbent auditor against
competitive threats.
In addition, the findings indicate that perceptions of value have a stronger impact on
intentions when switching (economic and security) costs are high. For trust, the
moderating impact varies between the categories of switching costs. For economic
switching costs, trust is a more powerful driver of intentions when these costs are
perceived to be high, but for security switching costs, the trustintentions link is
stronger in the low-cost condition. In other words, when SMEs are unconcerned about
 the security of their financial information, the unencumbered trustintentions link Contingency
emerges. model of client
Our results also show that when clients perceive both economic and security
switching costs as high, the negative impact of alternative supplier attractiveness
repatronage
intensifies. It may be that clients resent being locked in or captive to their current
supplier, so when they become aware of viable competing audit firms, their likelihood of
staying with their current auditor decreases considerably. Audit managers should be 125
aware that when clients are known to view switching costs as high, they are more likely
to be at risk of moving to a competing audit firm, due to their resentment at being held
captive (Patterson and Smith, 2003).
The study yields some other noteworthy results. Although not hypothesized, length
of patronage has a strong positive association ( 0.143, p 0.00) with repatronage
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intentions, indicating that the longer a client has been engaging a particular audit firm,
the greater the likelihood of the client remaining loyal. We speculate that two
mechanisms underlie this behavior. First, trust builds up over time and, as the results
indicate, is a strong driver of repatronage intentions. Second, it is likely that the SME
client and the audit manager/partner form a mutually respectful interpersonal
relationship, in which the client feels increasingly comfortable and confident over time
while interacting with the audit manager. In summary, audit partners must realize that
carefully nurturing client relationships in the early years will pay large dividends in
terms of increasing the likelihood of client retention in later years.
In addition, firm size has a significant ( 0.101, p 0.01) negative association
with intentions. This result indicates that smaller SMEs are more likely than their larger
counterparts to reengage their current audit firm for future work. It might be that
proprietors of smaller firms are in a position to have a closer and more meaningful
relationship with the auditor, because the audit team is smaller, possibly even involving
a single auditor. Smaller firms typically have less complete document filing systems
than their larger counterparts. If they change audit firms, a new auditor will take a
considerable amount of time to understand the system. Moreover, smaller SMEs are
more concerned about the confidentiality of their business information and less
comfortable with a new auditor, because they worry about a greater chance that other
parties have access to their information. This aspect emerged in the qualitative
interviews, when one interview remarked, changing auditors meant more people might
have access to financial information about my company.
Moreover, client involvement has a significant ( 0.097, p 0.01) negative
association with intentions, indicating that the more a client is involved in the auditing
process, the lower the likelihood of the client remaining loyal. We speculate that
proprietors of smaller firms expect the auditor to be able to do the entire job; they have
already paid the fee. Greater client involvement may prompt SME clients to feel that the
auditor does not truly understand their business.
Finally, this study is not free of limitations. We focus on one segment (SMEs) and one
category of professional services. It would be worthwhile to extend our findings to
larger firms and other professional services, especially given that financial audits in
Thailand are government mandated. It would be worthwhile to investigate other
business-to-business professional services for which no government mandates exist,
such as architecture, project management, engineering consulting, market research and
information technology consulting. The role of switching costs might also be examined
 ARJ in business-to-consumer services, such as financial planning, health care,
29,1 physiotherapy, psychological counseling or tax planning. Finally, the study should be
replicated in Western individualist countries, where clients are more prone to switching
service providers when expectations are not met.

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Appendix 1

Medium enterprise Small enterprise

No. of No. of
Sector employees Fixed assets employees Fixed assets

Production 51-200 THB50-200 million 50 THB50 million

(US$1.5-6.2 milliona) (US$1.5 milliona)
Service 51-200 THB50-200 million 50 THB50 million
(US$1.5-6.2 milliona) (US$1.5 milliona)
Trading
Wholesale 26-50 THB50-100 million 25 THB50 million
(US$1.5-3.1 milliona) (US$1.5 milliona)
Retail 16-30 THB30-60 million 15 THB30 million Table AI.
(US$0.9-1.9 milliona) (US$0.9 milliona) Definition of small-
and medium-sized
Note: a US$1 THB32.40 - exchange rate at 9/10/14 (x-rate.com 2014) enterprises in
Source: Institute for Small and Medium Enterprises Development (2013) Thailand
 ARJ Appendix 2
29,1
Factor 1 Factor 2 Factor 3 Factor 4
Item label RI AA ESC SSC

I am not looking for a new auditor 0.75

130 I intend to continue using the current auditor 0.71
I might change auditors if the audit fee of the new
auditor is cheaper than the current one 0.83
I might change auditors if the location of new
auditors office is easier to access than the current
one 0.92
I might change auditors if new auditor provide full
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function service (such as consulting and

bookkeeping) more than the current one 0.77
I have to spend a lot of money to get a new auditor 0.95
I have to spend a lot of time to search for a new
auditor 0.62
I am concerned that changing to a new auditor is
adding to the number of people who know about
my business and financial position 0.82
If I change auditor, it is going to take time before
Table AII. the new auditor is able to understand my business 0.79
Confirmatory factor Cronbach 0.69 0.88 0.74 0.79
analysis and
reliability of Notes: RI repatronage intentions; AA attractiveness of alternatives; ESC economic switching
constructs costs; SSC security switching costs

About the authors

Naruanard Sarapaivanich, PhD, is a lecturer at Accounting Department, Faculty of Business
Administration, Chiang Mai University, Thailand. She is also a CPA in Thailand. Her teaching
and research areas are audit, managerial accounting, financial accounting and SMEs. Her
research as been published in International Small Business Journal, Journal of Enterprising
Culture, The Journal of Business Management and Journal of Naresuan University. Naruanard
Sarapaivanich is the corresponding author and can be contacted at: naruanard@gmail.com
Paul G. Patterson, PhD, is a Professor in the School of Marketing at the University of New
South Wales, Sydney, Australia. He is also an adjunct Professor in the Faculty of Business
Administration at Chiang Mai University, Thailand. His research, teaching and consulting
interests revolve around management and marketing issues in service industries. In particular,
his research interests include client satisfaction, service recovery, service failure and recovery and
cross-cultural service encounters. His research has been published in the Journal of the Academy
of Marketing Science, Journal of Service Management, Journal of Service Research, Journal of
Retailing, California Management Review, European Journal of Marketing, Journal of Business
Research, Journal of International Business Studies, etc.

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