Article2002

Investor Dissatisfaction toward Auditors

Barbara J. Sainty · Gary Kenneth Taylor · David D. Williams

64 citations0/0 files storedJournal of Accounting Auditing & Finance

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Shareholders, as owners of the firm, often are sought to ratify management's selection of an auditor through a formal vote during the annual shareholders' meeting. This vote represents the primary vehicle for investor communication concerning auditor-related issues and, thus, can be used as an indicator of investor dissatisfaction with the auditor. This study proposes to measure shareholders' dissatisfaction with the auditor through the shareholders' auditor ratification vote. We identify attributes associated with high levels of investor dissatisfaction and then determine if a high level of investor dissatisfaction is associated with a subsequent change in a firm's auditor. We determined that investor dissatisfaction is associated with a firm having engaged a less credible auditor and the issuance of a going concern audit opinion. In addition, we find that investors react strongly to the unexpected issuance of a going concern opinion. Finally, we discovered that managers are sensitive to shareholder dissatisfaction signals by noting a higher occurrence of auditor changes for firms with high investor dissatisfaction.

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References

1997A Survey of Corporate Governance 1981Auditor size and audit quality 1998The Effect of Audit Quality on Earnings Management*1995Why Satisfied Customers Defect 1988Ownership structure and voting on antitakeover amendments 1995Auditor brand name reputations and industry specializations 1999The Role of Big 6 Auditors in the Credible Reporting of Accruals 1986Audit Fees and Auditor Size: Further Evidence

Cited by

2005Why Some Companies Seek Shareholder Ratification on Auditor Selection 2003Audit Committee Composition and Shareholder Actions: Evidence from Voting on Auditor Ratification 2009Adverse Section 404 Opinions and Shareholder Dissatisfaction toward Auditors 2010Ethical Dilemmas in Auditing: Dishonesty or Unintentional Bias?2009The Determinants of Auditor Switching from the Perspective of Corporate Governance in China 2013Corporate Governance Practices and Audit Quality: An Empirical Study of the Listed Companies in Egypt

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