Board Ethics and Auditor Choice – International Evidence

Social Science Research Network, 2011

In this research, the effect of corporate governance on choosing audit firms by companies accepted into the Tehran Stock Exchange has been investigated. The sample consisted of 545 observations (year-company) from 2004 to 2008. The audit firm size has been considered an audit quality criterion. The results of testing the research hypotheses by using a logistic regression model by means of the backward elimination method at the levels of all companies show that increasing the percentage of outside directors will increase the possibility of choosing high-quality audit firms. The percentage of institutional ownership (first hypothesis) has a negative meaningful relationship with the possibility of choosing high-quality audit firms as opposed to what was expected. Therefor only the fifth hypothesis of this research has been accepted regarding all companies. After the industry types were separately observed, the industry type was revealed that as a modifying factor it has an important effect on improving the statistics of the model and that it increases the potential of the power of prediction of the presented models.

Accounting Analysis Journal, 2020

This study aims to examine the effects of the size of independent commissaries, the effectiveness of audit committee and leverage on the selection of external auditors with firm size as moderation variable. The population of this research was all the companies of financial sector listed on the Indonesia Stock Exchange at 2017 as many as 95 companies. The samples were determined using purposive sampling technique. There were 89 companies as research samples and units of analysis. Moreover, the data were collected by documentation method. Analysis of research data used descriptive statistics and inferential statistics. The results indicate that the size of independent commissaries, the effectiveness of audit committee and leverage significantly have positive effect on the auditor selection. Firm size moderates the effects of the size of board of independent commissaries and leverage on the auditor selection, but does not moderates the effect of audit committee effectiveness on the aud...

2013

This paper analyzes the relationship between some internal corporate governance characteristics and external auditor choice. We use a sample of Italian listed companies during the period 2007 – 2010. The companies investigated operate in the industrial, merchandising, and service industries. External auditors are classified in two groups: Big 4 and non-Big 4 audit firms. Following previous research, we assume that audit services provided by the Big 4 are associated with higher audit quality. Corporate governance is observed through some features of the board of directors (BOD). Univariate and multivariate analysis show that BOD independence does not play a role in the choice of external auditor. The concentration of power stemming from the dual function of the CEO and Chairman of the Board is negatively associated with the choice of a Big 4 auditor. The BOD size appears to be positively associated with the choice of a reputed external auditor (Big 4). Overall, a small BOD and a conc...

Economics and Business Solutions Journal

This study aims to examine the influence of good corporate governance and the characteristics of the company on the external auditor selection empirically. The companies need to pay attention to the factors that influence the external auditor selection in order to obtain a high quality auditor. This study was conducted at the companies listed on the Indonesia Stock Exchange (IDX) and follows the Corporate Governance Perception Index (CGPI) in the year 2010-2014. The total sample of 35 was obtained by using the purposive sampling method. The dependent variable used was the external auditor selection, while the independent variable used was good corporate governance, the size of the company, profitability, leverage, and audit fees. The logistic regression analysis method was used to examine the hypothesis of this study. The results of this study showed that variable corporate governance, leverage and audit fees did not have a significant effect on the external auditor selection. While...

2018

We insert a high-quality (HQ) auditor into established experimental audit markets to investigate its impact on audit quality competition and managerial demand for audit quality. Theory predicts that managers will demand high levels of audit quality to avoid investors’ price-protecting behavior. This demand, in turn, will drive increased audit quality provision in the presence of a high-quality competitor. However, we find that adding an HQ auditor, who provides independent and high-quality audits, does not increase other auditors’ effort and quality. Instead, other auditors respond by lowering audit quality. This behavior results from managers often demanding less than the highest available audit quality. We find strong evidence that the HQ auditor does not dominate the market – despite holding audit costs constant and despite investors placing a premium on reports issued by the HQ auditor – as game theory predicts it should. Additional analyses suggest managerial loss aversion as a potential explanation. Managers appear to forego higher payoffs to receive fewer negative audit reports, and are more likely to switch auditors to an auditor with lower accuracy after experiencing a loss sensation. Our findings indicate a need for additional theoretical and empirical investigation to develop a more comprehensive theory of the demand for auditing.

2011

SSRN Electronic Journal

Purpose: This paper investigates the relation between the riskiness of a firm's investment policies and the firm's appointment of an external auditor. Design/Methodology/Approach: Using a sample of U.S. publicly listed companies from 2004-2014, we hypothesize that firms with riskier investment policies are more likely to choose a higher quality auditor to reduce information asymmetry and increase the credibility of financial reports. We use logit regression analysis, applying two measures of auditor quality (Big 4 and industry specialist auditors) and four measures of investment policy risk (research and development expenditure, diversification, capital expenditures, and acquisitions). Findings: We generally find that firms with riskier investment policies choose higher quality auditors. Specifically, firms with higher R&D expenditures and acquisitions are more likely to hire a Big 4 and/or industry specialist auditor, while firms with lower capital expenditures are more likely to select a Big 4 auditor. Practical Implications: Our findings support the notion that management characteristics and policies still may have influence over external auditor selection. This may be of interest to regulators and policymakers. Originality/Value: There is only limited research examining the effect of a firm's investment policies on that firm's decision to select a high-quality auditor. This paper is the first to do so in a comprehensive manner.

Journal of International Accounting, Auditing and Taxation, 2009

As the largest and fastest growing emerging market, China is becoming more and more important to investors throughout the world. The purpose of this paper is to investigate the determinants of firms' auditor choice in China in respect of their corporate governance mechanism. Normally firms have to take a trade-off in their auditor choice decisions, i.e., to hire high-quality auditors to signal effective audit monitoring and good corporate governance to lower their capital raising costs, or to select low-quality auditors with less effective audit monitoring in order to reap private benefits derived from weak corporate governance and less-transparent disclosure (the opaqueness gains). We develop a logit regression model to test the impact of firms' internal corporate governance mechanism on auditor choice decisions made by IPO firms getting listed during a bear market period of 2001-2004 in China. Three variables are used to proxy for firms' internal corporate governance mechanism, i.e., the ownership concentration, the size of the supervisory board (SB), and the duality of CEO and chairman of board of directors (BoDs). We classify all auditors in China into large auditors (Top 10) and others (non-Top 10), assuming the large auditors can provide higher quality audit services. The empirical results show that firms with larger controlling shareholders, with smaller size of SB, or in which CEO and BoDs chairman are the same person, are less likely to hire a Top 10 (high-quality) auditor. This suggests that when benefits from lowering capital raising costs are trivial, firms with weaker internal corporate governance mechanism are inclined to choose a low-quality auditor so as to capture and sustain their opaqueness gains. On the other hand, with improvement of corporate governance, firms should be more likely to appoint high-quality auditors.

2020

This study aims to analyze the effect of selecting a qualified external auditor on managerial ownership, board size, effectiveness of the audit committee, company size and profitability in the 2015-2017 period. The number of sample companies is 65 companies using purposive sampling. Total observational data were 195 observational data. The results showed that the size of the board of commissioners, the effectiveness of the audit committee, and profitability affected the selection of qualified external auditors. Whereas managerial ownership and company size do not influence the selection of qualified external auditors.

Asia-Pacific Journal of Accounting & Economics, 2018

Nowadays, companies are more selective in auditor choice due to the quality of auditing and financial reporting. Previous studies have examined various factors of auditor choice; however, only few of them combined the internal and external determinants of it. Therefore, this study aims to fill the gap using literature review approach and analyzes the determinants of auditor choice based on the findings of previous studies, then classifies it into internal and external factors. This study also discusses the auditor choice in Indonesia in order to gain more knowledge about it. The results of this study are expected to contribute to academicians and managers in terms of new insights about auditor choice.