Market reactions to auditor switches under regulatory consent and market driven regimes

Publication Type:
Journal Article
Journal of Contemporary Accounting and Economics, 2018, 14 (2), pp. 197 - 215
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© 2018 Elsevier Ltd We examine market reactions to announcements of auditor switches by Australian-listed companies during the ‘regulatory consent’ period (2000–2011) under which auditor resignations require consent by the corporate regulator before taking effect at annual general meetings. Overall, we find no clear evidence of significant market responses to firms announcing auditor switches, consistent with a lack of information content or potential information leakage argument. However, examination of a more recent sample in the ‘partial deregulation’ period (2015–2017), whereby timing and consent provisions have been relaxed under a more market-driven regime, uncovers univariate evidence of market reactions directionally consistent with the audit quality interpretation. Overall, these results provide support for the regulator's recent initiative to deregulate the auditor resignation process in Australia to become more disclosure driven as in other jurisdictions.
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