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The Impact of Managing Director Changes and Financial Distress on Audit Qualification and Auditor Switching

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  • Mohammad Hudaib
  • T.E. Cooke

Abstract

This study examines the interactive effects of change in managing director/chief executive officer (MD) and financial distress together with five control variables (type of audit firm; audit fees; gearing; time; and company size) on first, audit opinion and secondly on auditor switching. Based on a sample of 297 UK listed companies between 1987 and 2001, we find that companies that are financially distressed and change their MD are most likely to receive a qualified audit report, ceteris paribus. In addition, we find evidence of both familiarity and intimidation threats and that the probability of a switch increases with the severity of qualification.

Suggested Citation

  • Mohammad Hudaib & T.E. Cooke, 2005. "The Impact of Managing Director Changes and Financial Distress on Audit Qualification and Auditor Switching," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9‐10), pages 1703-1739, November.
    • Handle: RePEc:bla:jbfnac:v:32:y:2005:i:9-10:p:1703-1739
    DOI: 10.1111/j.0306-686X.2005.00645.x
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    References listed on IDEAS

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