Title: How do investors react to auditor resignations?

Authors: Wonik Choi; Vivek Mande; Myungsoo Son

Addresses: Mihaylo College of Business and Economics, California State University, Fullerton, CA 92834, USA ' Mihaylo College of Business and Economics, California State University, Fullerton, CA 92834, USA ' Mihaylo College of Business and Economics, California State University, Fullerton, CA 92834, USA

Abstract: Many prior studies examining stock market reaction to auditor changes have focused on short windows surrounding their announcements. These studies have found mixed results on how investors process auditor change information. Expanding the test window, we document a downward market reaction that begins 60 days prior to auditor resignation announcements and continues for at least 30 days after the announcements. Our analyses using longer pre- and post-announcement windows provide a fuller picture of the stock market reaction to auditor change events. We also find that there is negative market reaction to reportable events disclosures in the Form 8-K in the post-SOX years. This suggests that post-SOX, rather than simply assume that resignations are signals of bad news, investors find the specific reasons provided for the resignations to be incrementally useful.

Keywords: auditor switch; auditor resignation; auditor dismissal; market reaction; Sarbanes-Oxley.

DOI: 10.1504/IJAF.2019.106761

International Journal of Accounting and Finance, 2019 Vol.9 No.2/3/4, pp.205 - 227

Received: 23 Jul 2018
Accepted: 08 Aug 2019

Published online: 11 Apr 2020 *

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