Causes and Consequences of Auditor Changes: A Comparison of Accelerated and Non-Accelerated Filers

Abstract

This study uses three general hypotheses -- realignment, opinion shopping, and litigation risk -- to examine the determinants of auditor changes for a sample of companies. We also look at the reaction of the stock market to auditor changes. Our overall results are primarily consistent with prior research findings. However, we find that non-accelerated filers have important differences from accelerated filers both in the determinants of auditor changes and the market reactions to those changes. Non-accelerated filers appear to be less prone to opinion shopping and have fewer realignment issues driving changes than their accelerated counterparts. Auditor changes for both accelerated and non-accelerated filers, and particularly auditor resignations, are related to litigation risk factors. However, the pattern of significant individual litigation risk variables is different and more pronounced for non-accelerated filers. Our findings also demonstrate that the stock market reaction to auditor changes is different for accelerated filers compared to non-accelerated filers.