An empirical examination of the association between auditor change events and stock prices

The association between auditor change events and stock prices is investigated based on a new sequential partitioning event study research design developed in this dissertation. This research design sequentially partitions auditor change events to control for: (i) the differential information content in the Form 8-K filings (single Form 8-K filing and dual Form 8-K filing); (ii) the type of auditor change (resignations, decline to stand for re-elections and dismissals); and (iii) the size differential between the outgoing and incoming auditors [small auditor replaced by small auditor, small auditor replaced by big auditor, big auditor replaced by small auditor and big auditor replaced by big auditor]. The event study methodology is used to quantify the market reaction to auditor changes.;Contrary to prior auditor change event studies, total auditor changes at t1 are consistently negatively associated with stock prices and statistically significant. Partitioning total auditor changes at t 1 by the structure of the auditor change indicates that dual file auditor changes at t1 are consistently negatively associated with stock prices and statistically significant. Single file auditor changes at t 1 are inconsistently associated with stock prices and are not statistically significant.;Further partitioning of total dual file auditor changes at t1 by the type of auditor change indicates that dual file resignations at t 1 are consistently negatively associated with stock prices and statistically significant. Both dual file decline to stand for re-elections at t1 and dual file dismissals at t1 are consistently negatively associated with stock prices but are not statistically significant.;Dual file auditor changes at t2 are inconsistently associated with stock prices but not statistically significant. Further partitioning of total dual file auditor changes at t2 by the type of auditor change indicates that dual file resignations at t2 are inconsistently associated with stock prices and statistically insignificant; dual file decline to stand for re-elections at t2 are consistently negatively associated with stock prices but statistically insignificant; and dual file dismissals at t2 are consistently positively associated with stock prices but statistically insignificant.;Event study results are robust with respect to alternative specification of the underlying return generating process.