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The Effects of Audit Firms Rotation: An Event Study in Chile

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  • Antonio Aninat
  • Álvaro Bustos
  • Julio Riutort

Abstract

In order to determine the market reaction to an announcement of a change in the audit firm, we carry on an event study between 2004 and 2013 that includes 130 publicly traded Chilean Companies. We find that the market reacted positively when a company announced that it will keep its audit firm that year. We rule out possible biases in the informational content of the event. This suggests that overall, the costs associated to a change of an audit firm (start-up cost and know how loss) would dominate the benefits of the same change (reduction in the probability of a value destroying event such as a fraud or an error). We discuss the implications of this result for the potential implementation of a rule of mandatory rotation in a developing country such as Chile. We also discuss the possibility of identifying the specific costs and benefits behind the audit firm change.

Suggested Citation

  • Antonio Aninat & Álvaro Bustos & Julio Riutort, 2016. "The Effects of Audit Firms Rotation: An Event Study in Chile," Documentos de Trabajo 470, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:470
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-470.pdf
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    Cited by:

    1. Adalene Olivia Silvestre & Cristiano Machado Costa & Clóvis Antônio Kronbauer, 2018. "Audit Rotation And Earnings Quality: An Analysis Using Discretionary Accruals," Brazilian Business Review, Fucape Business School, vol. 15(5), pages 410-426, September.

    More about this item

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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