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The impact of mandatory versus voluntary auditor switches on stock liquidity: Some Korean evidence

Author

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  • Choi, Sunhwa
  • Choi, Youn-Sik
  • Gul, Ferdinand A.
  • Lee, Woo-Jong

Abstract

Using Korean listed firms subject to the auditor “designation rule”, this paper shows that (1) firms that switch auditors exhibit lower stock liquidity than firms that do not switch auditors, and (2) the negative liquidity effect of auditor switches is concentrated in firms that switch to low-quality auditors. Meanwhile, firms that switch auditors under the auditor designation system do not exhibit lower stock liquidity, consistent with audit designation mitigating the concerns about audit quality deterioration around auditor changes. Furthermore, we find that foreign ownership has a mitigating impact on the negative relation between auditor switches and stock liquidity, suggesting that investors are less concerned about auditor switches when an alternative monitoring mechanism exists.

Suggested Citation

  • Choi, Sunhwa & Choi, Youn-Sik & Gul, Ferdinand A. & Lee, Woo-Jong, 2015. "The impact of mandatory versus voluntary auditor switches on stock liquidity: Some Korean evidence," The British Accounting Review, Elsevier, vol. 47(1), pages 100-116.
    • Handle: RePEc:eee:bracre:v:47:y:2015:i:1:p:100-116
    DOI: 10.1016/j.bar.2014.08.001
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    2. Hsu-Huei Huang & Chin-Yin Chan, 2018. "Firms’ performance following the initial resignation of independent directors: evidence from Taiwan," Asia Pacific Business Review, Taylor & Francis Journals, vol. 24(5), pages 714-729, October.

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    More about this item

    Keywords

    Auditor switching; Stock liquidity; Auditor designation; Foreign ownership;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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