Auditor Resignation and Firm Ownership Structure

ABSTRACT

This paper investigates whether the likelihood of auditor resignations and the associated stock market reaction in family firms is significantly different from that in non-family firms. It also examines whether the aforementioned associations vary with the identity of the CEO managing family firms (founder, descendant, or non-family CEO). Relying on a sample of auditor resignations in the U.S. over five calendar years, 2004–2008, and using two control samples (matched and random) as benchmarks, we document the following. First, the likelihood of auditor resignations in family firms is significantly lower than that in non-family firms. Second, auditor resignations in family firms managed by a founder or non-family CEO (descendant) are also less (more) frequent compared to non-family firms. Finally, abnormal returns following auditor resignations in family firms and in family firms managed by a non-family CEO are higher (less negative) than those in non-family firms. These results are robust to the selection bias resulting from family ownership and contribute to the literature investigating auditor portfolio management decisions.

Keywords:  family firms, auditor resignations, corporate governance, market reactions

Samer K. Khalil is an Assistant Professor at the American University of Beirut, Jeffrey R. Cohen is a Professor at Boston College, and Gregory M. Trompeter is a Professor at the University of Central Florida

Source : Samer K. Khalil, Jeffrey R. Cohen, Gregory M. Trompeter (2011) Auditor Resignation and Firm Ownership Structure. Accounting Horizons: December 2011, Vol. 25, No. 4, pp. 703-727.