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Empirical Study On The Disclosure Of Reasons For Auditor Switching: Evidence From Japan

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  • Sakai, Ayami

Abstract

This study investigates the relationship between the context of auditor switching and the reasons for the switch provided in the extraordinary reports, which constitute one of the most distinctive characteristics of the auditor switching institution in Japan. The results of the empirical analysis indicate that the firms that switched from Big N to non-Big N auditors as well as the firms that received going-concern opinions just before auditor switching tended to provide “expiration of auditors’ term of office” as the reason for the switch in the extraordinary reports. Additionally, this study empirically examines whether the reasons provided in the extraordinary reports affect investment behavior. Using cumulative abnormal returns, this study demonstrates that there are no significant market reactions to the reasons for auditor switching. Thus, it can be concluded that the disclosure system related to the reasons for auditor switching may not be useful for investors.

Suggested Citation

  • Sakai, Ayami, 2025. "Empirical Study On The Disclosure Of Reasons For Auditor Switching: Evidence From Japan," MPRA Paper 125060, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:125060
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    References listed on IDEAS

    as
    1. Jong†Hag Choi & Jeong†Bon Kim & Xiaohong Liu & Dan A. Simunic, 2008. "Audit Pricing, Legal Liability Regimes, and Big 4 Premiums: Theory and Cross†country Evidence," Contemporary Accounting Research, John Wiley & Sons, vol. 25(1), pages 55-99, March.
    2. Smith, David B. & Nichols, Donald R., 1982. "A market test of investor reaction to disagreements," Journal of Accounting and Economics, Elsevier, vol. 4(2), pages 109-120, October.
    3. Krishnan, Jagan & Stephens, Ray G., 1995. "Evidence on opinion shopping from audit opinion conservatism," Journal of Accounting and Public Policy, Elsevier, vol. 14(3), pages 179-201.
    4. Karl E. Hackenbrack & Chris E. Hogan, 2002. "Market Response to Earnings Surprises Conditional on Reasons for an Auditor Change," Contemporary Accounting Research, John Wiley & Sons, vol. 19(2), pages 195-223, June.
    5. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
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    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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