The impact of mandatory versus voluntary auditor switches on stock liquidity: Some Korean evidence

Sunhwa Choi, Youn-Sik Choi, Ferdinand A. Gul and Woo-Jong Lee

The British Accounting Review, 2015, vol. 47, issue 1, 100-116

Abstract: Using Korean listed firms subject to the auditor “designation rule”, this paper shows that (1) firms that switch auditors exhibit lower stock liquidity than firms that do not switch auditors, and (2) the negative liquidity effect of auditor switches is concentrated in firms that switch to low-quality auditors. Meanwhile, firms that switch auditors under the auditor designation system do not exhibit lower stock liquidity, consistent with audit designation mitigating the concerns about audit quality deterioration around auditor changes. Furthermore, we find that foreign ownership has a mitigating impact on the negative relation between auditor switches and stock liquidity, suggesting that investors are less concerned about auditor switches when an alternative monitoring mechanism exists.

Keywords: Auditor switching; Stock liquidity; Auditor designation; Foreign ownership (search for similar items in EconPapers)
JEL-codes: G14 M48 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:47:y:2015:i:1:p:100-116

DOI: 10.1016/j.bar.2014.08.001

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