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The impact of mandatory versus voluntary auditor switches on stock liquidity in the Korean market

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<mark>Journal publication date</mark>03/2015
<mark>Journal</mark>British Accounting Review
Issue number1
Volume47
Number of pages17
Pages (from-to)100-116
Publication statusPublished
Early online date12/08/14
Original languageEnglish

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.