Shareholder Ratification of Auditors After PCAOB Censures

39 Pages Posted: 13 Jul 2021

See all articles by Paul Tanyi

Paul Tanyi

University of North Carolina (UNC) at Charlotte - Department of Accounting

Dasaratha Rama

Florida International University (FIU) - College of Business Administration

Kannan Raghunandan

Florida International University (FIU)

Date Written: July 11, 2021

Abstract

Prior research provides inconsistent evidence about the effect of PCAOB censures of US Big 4 audit firms on investors’ reactions. In this study, we use shareholder ratifications of the auditor as a direct measure of investor perceptions about audit quality. We find that first-time censures of Deloitte, Ernst & Young, and PwC by the PCAOB are associated with greater shareholder dissatisfaction, as measured by the percent of shareholders not voting to ratify the auditor after the censure. However, the repeat censures of Deloitte do not elicit significant reactions from shareholders. Further, shareholders are more likely to vote against audit committee directors when the censured audit firm continues as the client’s auditor. Thus, the results suggest that investors view PCAOB censures of audit firms as indicators of (negative) audit quality in some instances and, hence, are of potential interest to regulators, audit committees, and investors.

Keywords: PCAOB Censures, Auditor Ratifications, Audit Committee Elections

JEL Classification: M41, M42

Suggested Citation

Tanyi, Paul and Rama, Dasaratha and Raghunandan, Kannan, Shareholder Ratification of Auditors After PCAOB Censures (July 11, 2021). Available at SSRN: https://ssrn.com/abstract=3884425 or http://dx.doi.org/10.2139/ssrn.3884425

Paul Tanyi (Contact Author)

University of North Carolina (UNC) at Charlotte - Department of Accounting ( email )

9201 University City Blvd
Charlotte, NC 28223
United States

Dasaratha Rama

Florida International University (FIU) - College of Business Administration ( email )

Miami, FL 33199
United States

Kannan Raghunandan

Florida International University (FIU)

1101 Brickell Ave Ste 1100S
Miami, FL 33131-3113
United States

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