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An Agency Perspective of Auditor Change in Small Firms

Author

Listed:
  • Kevin Keasey

    (Leeds University)

  • Robert Watson

    (University of Manchester Institute of Science & Technology)

Abstract

This paper uses an agency theory perspective to develop an understanding of the determinants of auditor change for small firms in the United Kingdom. The paper, therefore, extends the existing literature (see Williams [22] and Francis and Wilson [9]) from a consideration of auditor change for large firms in the United States to small firms in the U.K. The results indicate that small U.K. firms have a greater propensity to change their auditors subsequent to the receipt of a first-time audit qualification, to a change in the composition of their board of directors, to a change in their use of external loan capital, and when their existing loans are not secured. The results indicate some support for the agency arguments examined, though there is also evidence of auditor ‘accommodation’ being sought.

Suggested Citation

  • Kevin Keasey & Robert Watson, 1991. "An Agency Perspective of Auditor Change in Small Firms," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 1(1), pages 45-59, Spring.
    • Handle: RePEc:pep:journl:v:1:y:1991:i:1:p:45-59
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    References listed on IDEAS

    as
    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    2. Healy, Paul & Lys, Thomas, 1986. "Auditor changes following big eight mergers with non-big eight audit firms," Journal of Accounting and Public Policy, Elsevier, vol. 5(4), pages 251-265.
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Storey, D. J., 2002. "Education, training and development policies and practices in medium-sized companies in the UK: do they really influence firm performance?," Omega, Elsevier, vol. 30(4), pages 249-264, August.

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    More about this item

    Keywords

    Auditor; Small Firm; Auditor Change; Agency;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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