Abstract
We examine the determinants of clients’ decision to follow departing partners to new audit firms and the effect of this decision on the likelihood of financial restatements. Using Taiwanese audit partner turnover data from 1984 to 2010, we find that clients are more likely to follow departing partners when the partners have more clients, longer tenure, and when both lead and concurring partners leave simultaneously. By contrast, clients are more likely to stay with their incumbent audit firms when the firms are one of the Big Four or when only the concurring partners leave. The extended partner tenure due to clients following departing partners, however, does not enhance audit quality. In fact, clients that stay at the incumbent firm experience a significant decrease in the probability of financial restatements in the first year after the audit partners leave, but clients that follow do not.
| Original language | English |
|---|---|
| Pages (from-to) | 541-571 |
| Number of pages | 31 |
| Journal | European Accounting Review |
| Volume | 28 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2019 May 27 |
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All Science Journal Classification (ASJC) codes
- Accounting
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The Determinants and Effects of Clients Following Audit Partners Who Switch Audit Firms. / Chang, Wen-Ching; Choy, Hiu Lam; Lin, Huey Yeh; Koo, Meihua.
In: European Accounting Review, Vol. 28, No. 3, 27.05.2019, p. 541-571.Research output: Contribution to journal › Article
TY - JOUR
T1 - The Determinants and Effects of Clients Following Audit Partners Who Switch Audit Firms
AU - Chang, Wen-Ching
AU - Choy, Hiu Lam
AU - Lin, Huey Yeh
AU - Koo, Meihua
PY - 2019/5/27
Y1 - 2019/5/27
N2 - We examine the determinants of clients’ decision to follow departing partners to new audit firms and the effect of this decision on the likelihood of financial restatements. Using Taiwanese audit partner turnover data from 1984 to 2010, we find that clients are more likely to follow departing partners when the partners have more clients, longer tenure, and when both lead and concurring partners leave simultaneously. By contrast, clients are more likely to stay with their incumbent audit firms when the firms are one of the Big Four or when only the concurring partners leave. The extended partner tenure due to clients following departing partners, however, does not enhance audit quality. In fact, clients that stay at the incumbent firm experience a significant decrease in the probability of financial restatements in the first year after the audit partners leave, but clients that follow do not.
AB - We examine the determinants of clients’ decision to follow departing partners to new audit firms and the effect of this decision on the likelihood of financial restatements. Using Taiwanese audit partner turnover data from 1984 to 2010, we find that clients are more likely to follow departing partners when the partners have more clients, longer tenure, and when both lead and concurring partners leave simultaneously. By contrast, clients are more likely to stay with their incumbent audit firms when the firms are one of the Big Four or when only the concurring partners leave. The extended partner tenure due to clients following departing partners, however, does not enhance audit quality. In fact, clients that stay at the incumbent firm experience a significant decrease in the probability of financial restatements in the first year after the audit partners leave, but clients that follow do not.
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UR - http://www.scopus.com/inward/citedby.url?scp=85052311962&partnerID=8YFLogxK
U2 - 10.1080/09638180.2018.1509014
DO - 10.1080/09638180.2018.1509014
M3 - Article
AN - SCOPUS:85052311962
VL - 28
SP - 541
EP - 571
JO - European Accounting Review
JF - European Accounting Review
SN - 0963-8180
IS - 3
ER -