Auditor Resignations and Firm Ownership Structure

35 Pages Posted: 24 Nov 2008 Last revised: 1 Jun 2011

See all articles by Samer Khalil

Samer Khalil

American University of Beirut

Jeffrey R. Cohen

Boston College - Department of Accounting

Gregory M. Trompeter

Boston College

Date Written: May 29, 2011

Abstract

This paper investigates whether firm ownership structure alters the likelihood of auditor resignations and the associated stock market reaction in the U.S. over the period 2004-2008. Relying on prior research, we posit that family ownership aligns family members’ interests with those of minority shareholders reducing the likelihood of auditor resignations and attenuating the associated stock market reaction, especially in family firms managed by professional or founder CEOs.

Logistic regression documents a lower likelihood of auditor resignations in family firms and in family firms managed by professional CEOs as opposed to non family firms. It also shows that auditors of family firms managed by descendant CEO (founder CEO) are more (less) likely to resign than those auditing family firms managed by a professional CEO (descendant CEO).

OLS Regression documents that abnormal returns following auditor resignations in family firms and in family firms managed by a professional CEO are higher (less negative) than those in non family firms. Abnormal returns, however, do not vary based on whether a family firm is managed by a descendant or founder CEO. Results are robust to the selection bias arising from family ownership and contribute to the literature investigating auditor resignations and firm ownership structure.

Keywords: Family firms, auditor resignations, corporate governance, market reactions

JEL Classification: M49, G32, G34, G12

Suggested Citation

Khalil, Samer K. and Cohen, Jeffrey R. and Trompeter, Gregory M., Auditor Resignations and Firm Ownership Structure (May 29, 2011). Accounting Horizons, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1304649

Samer K. Khalil

American University of Beirut ( email )

Suliman S. Olayan School of Business
P.O.Box 11-0236
Beirut 1107 2020, Riad El-Solh
Lebanon

Jeffrey R. Cohen (Contact Author)

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3165 (Phone)
617-552-2097 (Fax)

Gregory M. Trompeter

Boston College ( email )

Carroll School of Management 140 Commonwealth Avenue
Chestnut Hill, MA 02167
United States
617-552-0878 (Phone)
617-552-2097 (Fax)

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