The authors are respectively from the University of Bradford and the University of Exeter. They would like to acknowledge the helpful comments of the anonymous referee, Dr R.Haniffa, Dr K.McMeeking, B.Pearson and Professors D.Citron, F.Gul, R.J.Taffler, M.J.Tippett and S.Zeff.
The Impact of Managing Director Changes and Financial Distress on Audit Qualification and Auditor Switching
Article first published online: 16 NOV 2005
Journal of Business Finance & Accounting
Volume 32, Issue 9-10, pages 1703–1739, November 2005
How to Cite
Hudaib, M. and Cooke, T.E. (2005), The Impact of Managing Director Changes and Financial Distress on Audit Qualification and Auditor Switching. Journal of Business Finance & Accounting, 32: 1703–1739. doi: 10.1111/j.0306-686X.2005.00645.x
- Issue published online: 16 NOV 2005
- Article first published online: 16 NOV 2005
- (Paper received July 2003, revised and accepted November 2004)
- change in managing director;
- financial distress;
- audit qualification;
- auditor switching;
- auditor independence
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.