Corporate Governance, Auditor Choice and Auditor Switch

The purpose of this study is to investigate the
association between firms internal corporate
governance mechanism and their auditor choice and
auditor switch decisions and how investors respond
to firms auditor choice and auditor switch
decisions in the Chinese context. The findings of
this study have theoretical and practical
implications. Different from prior studies, we find
that, in order to sustain opaqueness gains, firms
with weak internal corporate governance mechanism
and therefore high agency costs may be inclined to
avoid high-quality auditors. This study further
suggests that investors respond differently to
different types of auditor switch (i.e., switching
to a larger auditor and switching to a smaller
auditor). There are also practical implications. To
bolster the confidence of the market participants,
the regulators should carefully monitor auditing
practices to protect the interests of investors.

Autorentext
Ming Liu, Ph.D, an assistant professor at University of Macau. Dr. Liu's research interests are financial accounting, auditing, and corporate governance. Z.Jun Lin, Ph.D, CPA, CMA, a professor of accounting and the Head of Department of Accountancy & Law at Hong Kong Baptist University. Prof. Lin has published over 20 academic papers.

Klappentext
The purpose of this study is to investigate the association between firms' internal corporate governance mechanism and their auditor choice and auditor switch decisions and how investors respond to firms' auditor choice and auditor switch decisions in the Chinese context. The findings of this study have theoretical and practical implications. Different from prior studies, we find that, in order to sustain opaqueness gains, firms with weak internal corporate governance mechanism and therefore high agency costs may be inclined to avoid high-quality auditors. This study further suggests that investors respond differently to different types of auditor switch (i.e., switching to a larger auditor and switching to a smaller auditor). There are also practical implications. To bolster the confidence of the market participants, the regulators should carefully monitor auditing practices to protect the interests of investors.