Financial Distress, Corporate Governance And Auditor Switches

Auditor switches become the focus that the theory circle and the practice circle pay close attention to, for its potential unfavorable economic consequence. In recent years, we have obtained comparatively rich achievements in positive research. However, most current research approaches follow the "bringing doctrine". It is almost no innovation of research approach and expansion in this research field. The financial distressed company is regarded as the special segment in listed companies, for the unusual characteristic of financial conditions and the special regulation from securities regulatory departments. It is a great opportunity for us to study auditor switches and relevant "opinion shopping" economic consequence. Corporate governance is the most important system arrangement in modern enterprises, and its perfection degree is restricting the efficiency of corporate governance and the financial conditions directly. Financial conditions and corporate governance both show essential feathers of listed companies from different angles respectively. They not only influence each other, but also have an effect on auditor switches. Though scholars can economize their study cost by drawing lessons from existing ripe research approaches. When we analyze the relationship among financial conditions, corporate governance and auditor switches, it is necessary to pay close attention to Chinese special system backgrounds and characteristics of listed companies, to adjust the relevant research approach for its unique mysterious veil. So we could obtain further comprehend to auditor switches on Chinese security market and offer experimental data for effective regulatory. Therefore we choose the financial distressed listed company as the breakthrough point and use Logistic Regression Model to analyze impacts of financial conditions and corporate governance on auditor switches based on forefather's researches. We also consider the influence of regulatory environment's change and investigate the result after some regulatory measures taken.We select specially-treated A-share companies listed on the Shanghai and Shenzhen stock exchange during the period 2002 through 2003, and test emphatically effects of variables on auditor switches, which represent financial characteristic and corporate governance. We find that it isn't remarkable relation between financial characteristic variables and auditor switches, corporate governance variables have some correlation with auditor switches and the first big shareholder with more proportion share in company, it is more possible to keep the relationship with incumbent auditor.Additionally, we yet consider the change of regulatory environment in2001and analyze the resultant impact on our findings. We discover that financial distressed companies alter auditor more frequently with new regulatory police adoption.