The Impact of Chief Audit Executive Turnover in Taiwan

43 Pages Posted: 7 Oct 2019 Last revised: 18 Mar 2024

See all articles by Kenneth L. Bills

Kenneth L. Bills

Michigan State University - Department of Accounting & Information Systems

Hua‐Wei Huang

National Cheng Kung University - Accounting

Yi-Hung Lin

Monash University

David A. Wood

Brigham Young University - School of Accountancy

Date Written: March 2024

Abstract

This study adds to the emerging body of research showing the importance of internal audit to improve corporate governance and firm performance. Specifically, we test how the market reacts to the announcement of a turnover to the head of internal audit (i.e., the chief audit executive (CAE)). We find negative cumulative abnormal returns in the days surrounding the announcement of a CAE turnover and that the market holds a relatively negative perception of CAE turnover regardless of the reasons for the turnover event. We then study two reasons for why the market would react negatively to the CAE turnover and find that CAE turnovers are associated with lower financial reporting quality (i.e., greater likelihood of misstatements, higher abnormal and positive discretionary accruals) and lower operating performance (i.e., return on assets, return on equity, and Tobin’s Q). We find evidence of both decreased financial reporting quality and firm performance following CAE turnovers. The financial reporting changes are largely temporary, only having an influence for one period after the turnover event. The firm performance effects are also temporary, but last for 2 to 5 years after the CAE turnover. Finally, in additional analyses we also find that CAE turnover is positively associated with external audit fees.

Keywords: internal auditor turnover, financial reporting quality, audit risk, chief audit executive (CAE)

JEL Classification: M4, M40, M41, M42, G30

Suggested Citation

Bills, Kenneth L. and Huang, Hua-Wei and Lin, Yi-Hung Jerry and Wood, David A., The Impact of Chief Audit Executive Turnover in Taiwan (March 2024). Available at SSRN: https://ssrn.com/abstract=3464557 or http://dx.doi.org/10.2139/ssrn.3464557

Kenneth L. Bills

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States

Hua-Wei Huang

National Cheng Kung University - Accounting ( email )

1 Ta-Hsueh Road
Tainan, 701
Taiwan

Yi-Hung Jerry Lin

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

David A. Wood (Contact Author)

Brigham Young University - School of Accountancy ( email )

518 TNRB
Brigham Young University
Provo, UT 84602
United States
801-422-8642 (Phone)
801-422-0621 (Fax)

HOME PAGE: http://marriottschool.byu.edu/employee/employee.cfm?emp=daw44

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