Auditor Resignations versus Dismissals: An Examination of the Differential Effects on Market Liquidity and Trading Activity

Advances in Accounting, 2001, 18: 47-76

Posted: 30 Aug 2014

See all articles by Jeff P. Boone

Jeff P. Boone

University of Texas at San Antonio - Department of Accounting

K. K. Raman

The University of Texas at San Antonio

Date Written: 2001

Abstract

This study addresses whether an auditor change (a resignation or a dismissal) mitigates information asymmetry as measured by market liquidity or trading activity. For auditor dismissals our results show no effect on our sample firms' market liquidity or trading activity. By contrast, for auditor resignation firms, the market liquidity tests indicate that the 12 month period preceding the 8K filing is characterized by rising information asymmetry. Also, our trading activity analysis suggests that the 8K auditor resignation filing is informative for individual investors but fails to support such informativeness for institutional investors. Our findings lend support for the SEC's decision to differentiate between auditor resignations and dismissals in the 8K. However, the resignation announcement does not appear to decrease inforĀ­mation asymmetry subsequent to the 8K filing, which is inconsistent with the presumed SEC objective of maintaining public confidence in the securities markets as a level playing field by mitigating information asymmetry.

Keywords: Auditor resignations vs. Dismissals, Market liquidity, Trading activity

JEL Classification: G18, L11, L15, L51, L80, M40, M41, M42, M48

Suggested Citation

Boone, Jeff P. and Raman, K. K., Auditor Resignations versus Dismissals: An Examination of the Differential Effects on Market Liquidity and Trading Activity (2001). Advances in Accounting, 2001, 18: 47-76. Available at SSRN: https://ssrn.com/abstract=2488616

Jeff P. Boone

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States

K. K. Raman (Contact Author)

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

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