| I examine the influence of managerial overconfidence and ability on 1) auditors' decision to issue a going concern opinion and 2) auditor dismissal rates after issuing a going concern opinion. When there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, auditing standards prescribe that auditors obtain and evaluate information about client management's remedy plans. I find that clients with overconfident managers are more likely to receive a going concern opinion. I also show that managerial ability mitigates the positive association between managerial overconfidence and the likelihood of a going concern opinion. Additionally, I examine how these managerial attributes influence auditor retention decisions, and find that auditors are more likely to be dismissed after issuance of a going concern opinion when the client company has overconfident management. Finally, I find that the association between managerial overconfidence and auditor dismissal is stronger when management is more powerful than the company's audit committee. |
