Auditor rotation at Borsa Istanbul firms: an event study

Abstract

This study investigates the market reaction surrounding the announcements of audit firm rotation by public firms quoted at BIST. In addition, it investigates how the market reaction to audit firm rotation changes based on the reputation of the previous and the new audit firms. After conducting an event study, we are unable to provide evidence suggesting that investors in Turkish capital markets value audit firm rotation. The market reaction surrounding the announcements of public firms to switch audit firms or to renew their contracts with the current audit firms is not statistically significant. Our findings also suggest that investors in Turkish capital markets do not value the reputation of audit firms when public firms switch auditors as well. The results are robust to various event windows and alternative audit firm reputation definitions.

¿Son relevantes los cambios voluntarios de auditores para el mercado brasileño? Un análisis basado en el rendimiento y el volumen de negociación de acciones

“…In addition, there is no evidence of market reaction when audited companies migrate from a Non-Big4 to a Big4 or when companies switch from an audit rm to another of the same size (H2b hypothesis is rejected and H3 is not rejected). ese results are compatible with prior studies of Nichols and Smith (1983), Johnson and Lys (1990), Klock (1994), Schwartz and Soo (1996) and Arioglu and Tuan (2015).…”

“…e event window comprising the day of the event announcement (d0), the two-day period (d0 and d+1) and the three-day window (d-1, d0 and d+1). We use short-term event windows to prevent the effects of the analyzed event from getting confused with other events (Knechel et al, 2007;Arioglu & Tuan, 2015).…”

“…Like Smith (1988), Hagigi, Kluger andShields (1993), and Arioglu and Tuan (2015), we also used univariate analysis to evaluate market reaction to audit rm change with subsamples analysis to do the robustness test. However, we are aware that univariate analysis represents a limitation in this paper for not using other control variables.…”