Do Investors Care About Auditor Dismissals and Resignations? What Drives the Response?

31 Pages Posted: 30 Dec 2007 Last revised: 9 Feb 2010

See all articles by Paul A. Griffin

Paul A. Griffin

University of California, Davis - Graduate School of Management

David H. Lont

University of Otago - Department of Accountancy and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 31, 2010

Abstract

This paper uses market response tests to document key factors that help explain why investors find some auditor change announcements informative and others not. We find that the key drivers of investor response relate more to economic fundamentals than to the auditor change attributes in mandated auditor change disclosures. Investors react most negatively to resignation announcements (and much less for dismissals), and this response increases for companies with prior securities litigation and higher bankruptcy risk. Once we control for these factors, mandated auditor change disclosures other than an indication of resignation, while significant, have only limited ability to explain the price drop around an auditor change announcement.

Keywords: dismissal, resignation, investor response, event study, Form 8-K report, Item 4.01 changes in registrant’s certifying accountant

JEL Classification: C20, G14, G18, K22, M42

Suggested Citation

Griffin, Paul A. and Lont, David H., Do Investors Care About Auditor Dismissals and Resignations? What Drives the Response? (January 31, 2010). UC Davis Graduate School of Management Research Paper No. 03-10, Available at SSRN: https://ssrn.com/abstract=1079243 or http://dx.doi.org/10.2139/ssrn.1079243

Paul A. Griffin

University of California, Davis - Graduate School of Management ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

David H. Lont (Contact Author)

University of Otago - Department of Accountancy and Finance ( email )

Box 56
Dunedin, Otago 9054
New Zealand
+64 3 479 8119 (Phone)
+64 3 479 8171 (Fax)

HOME PAGE: http://www.business.otago.ac.nz/acty/

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