Abstract In many situations, an auditor change is in the best interests of both shareholders and managers. However, management may also initiate an audit firm change in an attempt to suppress or delay the release of unfavourable information. In this paper, we present the results of three separate tests of “Over the Counter” companies, which relate to managerial attempts to withhold information from the market. In the first who tests, we show that companies that change auditors shortly before bankruptcy appear to have done so because they were unable to suppress unfavourable information. The first of the tests shows a significantly better bankcruptcy prediction model for auditor changers than for non-changers. The second test rules out the major competing rationale for the results observed in the first test: that the auditor change firms had an early warning, or longer lead-time, before bankcruptcy. The remaining explanation, that managers were attempting to switch to more cooperative auditors, is thus indirectly supported. In the third test we show that the market takes the possibility of managerial moral hazard into account. Abnormal returns in the month of auditor change announcement are significantly negative in all cases except for changes from non-Big Eight to Big Eight auditors. Furthermore, abnormal returns were significantly more-negative when managers held more than 50 percent of the company's common stock, thus removing any effective method of managerial discipline by outside shareholders. Taken together, the results indicate that in periods of financial distress, managers seem to attempt to suppress unfavourable information from the market. This suppression cannot be accounted for as the result of a longer lead-time between distress and bankcrupty for firms that change auditors than for firms that do not. Finally, the market seems to be aware of the potential for managerial moral hazard, in that the share price response is unambigously negative, except in likely “good news” situations.