Impact of ownership concentration on the auditor switching with modified audit opinion as mediation variable

Omid Farhad Touski

Article ID: 8170
Vol 7, Issue 2, 2024

VIEWS - 0 (Abstract) 0 (PDF)

Abstract


Motivated by recent studies that show that ownership characteristics have an effect on auditor opinion and auditor change, this research examines the effect of ownership concentration on the auditor switching with modified audit opinion as a mediation variable. The explanatory variable is ownership concentration, and the explained variable is auditor change and modified audit opinion as mediating variables. The method used for analysis is called logistic regression. The data is related to manufacturing companies listed on the Tehran Stock Exchange from 2013 to 2022. Research findings show that ownership concentration has a positive and significant effect on auditor change. Ownership concentration has a significant negative effect on the modified audit opinion. Modified audit opinion mediates between ownership concentration and auditor change. Empirical findings show that high ownership concentration may increase the probability of auditor change and decrease the probability of modified audit opinions.


Keywords


auditor switching; modified audit opinion; ownership concentration; Tehran stock exchange

Full Text:

PDF


References


1. Woo ES, Koh HC. Factors associated with auditor changes: a Singapore study. Accounting and Business Research. 2001; 31(2): 133-144. doi: 10.1080/00014788.2001.9729607

2. Abubakar H. The impact of corporate governance on the productivity of a firm. Nasarawa State University, Keffi; 2010; Unpublished work.

3. Eisenhardt KM. Agency Theory: An Assessment and Review. The Academy of Management Review. 1989; 14(1): 57. doi: 10.2307/258191

4. Wati Y. Auditor Switching: New Evidence from Indonesia. The Indonesian Journal of Accounting Research. 2020; 23(01). doi: 10.33312/ijar.464

5. Lennox C. Do companies successfully engage in opinion-shopping? Evidence from the UK. Journal of accounting and economics. 2000; 29(3): 321-337.

6. Chen F, Francis JR, Hou Y. Opinion shopping through same-firm audit office switches. 2019.

7. Dodgson MK, Agoglia CP, Bennett GB, et al. Managing the Auditor-Client Relationship Through Partner Rotations: The Experiences of Audit Firm Partners. The Accounting Review. 2019; 95(2): 89-111. doi: 10.2308/accr-52556

8. Pereira AN. Corporate Governance and Quality of Accounting Information: The Relation of Content and Logit Betwing Fiscal Board and Independent Auditor Opinion in Brazilian Companies Listed at Bovespa (2006). SSRN Electronic Journal. 2009. doi: 10.2139/ssrn.1415522

9. Hu M, Muhammad A, Yang J. Ownership concentration, modified audit opinion, and auditor switch: New evidence and method. The North American Journal of Economics and Finance. 2022; 61: 101692. doi: 10.1016/j.najef.2022.101692

10. Carey PJ, Geiger MA, O’connell BT. Costs Associated with Going‐Concern‐Modified Audit Opinions: An Analysis of the Australian Audit Market. Abacus. 2008; 44(1): 61-81. doi: 10.1111/j.1467-6281.2007.00249.x

11. Chow CW, Rice SJ. Qualified audit opinions and auditor switching. Accounting Review. 1982: 326-335.

12. Craswell AT. The Association Between Qualified Opinions and Auditor Switches. Accounting and Business Research. 1988; 19(73): 23-31. doi: 10.1080/00014788.1988.9728832

13. Citron DB, Taffler RJ. The Audit Report under Going Concern Uncertainties: An Empirical Analysis. Accounting and Business Research. 1992; 22(88): 337-345. doi: 10.1080/00014788.1992.9729449

14. Schwartz KB, Menon K. Auditor switches by failing firms. Accounting Review. 1985: 248-261.

15. Haskins ME, Williams DD. A contingent model of intra-Big Eight auditor changes. Auditing: A Journal of Practice & Theory. 1990: 9(3).

16. DeAngelo LE. Mandated successful efforts and auditor choice. Journal of Accounting and Economics. 1982; 4(3): 171-203.

17. Newton NJ, Persellin JS, Wang D, et al. Internal Control Opinion Shopping and Audit Market Competition. The Accounting Review. 2015; 91(2): 603-623. doi: 10.2308/accr-51149

18. Fauziyyah W, Sondakh JJ, Suwetja IG. The Effect of Financial Distress, Company Size, Audit Opinion, and Cap Reputation on Voluntary Auditor Switching in Manufacturing Companies Listed on the Indonesia Stock Exchange (Indonesian). Jurnal EMBA: Jurnal Riset Ekonomi, Manajemen, Bisnis Dan Akuntansi. 2019: 7(3).

19. Faradila Y, Yahya MR. The effect of audit opinion, financial distress, and client company growth on auditor switching (study of Manufacturing companies listed on the Indonesia Stock Exchange in 2010-2014) (Indonesian). Journal Ilmiah Mahasiswa Ekonomi Akuntansi. 2016; 1(1): 81-100.

20. Putra I, Suryanawa IK. The effect of audit opinion and KAP reputation on auditor switching with financial distress as a moderating variable (Indonesian). E-Jurnal Akuntansi Universitas Udayana. 2016; 14(2): 1120-1149.

21. Suryandari D, Dwiyanti F. The Effect of Company Size and Audit Opinion on Auditor Switching with Moderated by the Auditor’s Reputation. In: Proceedings of the 3rd International Conference on Economics, Business and Economic Education Science, ICE-BEES 2020; 22-23 July 2020; Semarang, Indonesia. doi: 10.4108/eai.22-7-2020.2307882

22. Winata AS, Anisykurlillah I. Analysis of Factors Affecting Manufacturing Companies in Indonesia Performing a Switching Auditor. Jurnal Dinamika Akuntansi. 2018; 9(1): 82-91. doi: 10.15294/jda.v9i1.11998

23. Pawitri NMP, Yadnyana K. The effect of audit delay, audit opinion, auditor reputation and management turnover on voluntary auditor switching (Indonesian). E-jurnal akuntansi universitas udayana. 2015; 10(1): 214-228.

24. Huson MR, Parrino R, Starks LT. Internal Monitoring Mechanisms and CEO Turnover: A Long‐Term Perspective. The Journal of Finance. 2001; 56(6): 2265-2297. doi: 10.1111/0022-1082.00405

25. Nazri SNFSM, Smith M, Ismail Z. Factors influencing auditor change: evidence from Malaysia. Asian Review of Accounting. 2012; 20(3): 222-240. doi: 10.1108/13217341211263274

26. Meckling WH, Jensen MC. Theory of the Firm. Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics. 1976; 3(4): 305-360

27. Lesmana K, Kurnia R. Analysis of the Effect of Management Change, Previous Year's Audit Opinion, Financial Distress, KAP Size, and Client Company Size on Voluntary Auditor Switching (Indonesian). Ultimaccounting: Jurnal Ilmu Akuntansi. 2016; 8(1): 37-52. doi: 10.31937/akuntansi.v8i1.576

28. Skinner DJ, Srinivasan S. Audit Quality and Auditor Reputation: Evidence from Japan. The Accounting Review. 2012; 87(5): 1737-1765. doi: 10.2308/accr-50198

29. Lin ZJ, Liu M. The Determinants of Auditor Switching from the Perspective of Corporate Governance in China. Corporate Governance: An International Review. 2009; 17(4): 476-491. doi: 10.1111/j.1467-8683.2009.00759.x

30. Zaid Alkilani S, Nordin Wan Hussin W, Salim B. Impact of Ownership Characteristics on Modified Audit Opinion in Jordan. International Journal of Accounting, Finance and Risk Management. 2019; 4(3): 71. doi: 10.11648/j.ijafrm.20190403.11

31. Nehme R, Michael A, Haslam J. Directors’ Monitoring Role, Ownership Concentration and Audit fees. Australasian Business, Accounting & Finance Journal. 2020; 14(5): 3-25. doi: 10.14453/aabfj.v14i5.2

32. Sulimany HGH. Does Institutional Ownership Moderate the Relationship Between Audit Committee Composition and Audit Report Lag: Evidence From Saudi. Sage Open. 2024; 14(2). doi: 10.1177/21582440241241171

33. Astami E, Pramono AJ, Rusmin R, et al. Do family ownership and supervisory board characteristics influence audit report lag? A view from a two-tier board context. Journal of International Accounting, Auditing and Taxation. 2024; 56: 100638. doi: 10.1016/j.intaccaudtax.2024.100638

34. Liu Q, Lu Z. Corporate governance and earnings management in the Chinese listed companies: A tunneling perspective. Journal of Corporate Finance. 2007; 13(5): 881-906. doi: 10.1016/j.jcorpfin.2007.07.003

35. Healy PM, Wahlen JM. A Review of the Earnings Management Literature and Its Implications for Standard Setting. Accounting Horizons. 1999; 13(4): 365-383. doi: 10.2308/acch.1999.13.4.365

36. Dechow PM, Skinner DJ. Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators. Accounting Horizons. 2000; 14(2): 235-250. doi: 10.2308/acch.2000.14.2.235

37. Jones JJ. Earnings Management During Import Relief Investigations. Journal of Accounting Research. 1991; 29(2): 193. doi: 10.2307/2491047

38. Sobel ME. Asymptotic Confidence Intervals for Indirect Effects in Structural Equation Models. Sociological Methodology. 1982; 13: 290. doi: 10.2307/270723

39. Sobel ME. Some New Results on Indirect Effects and Their Standard Errors in Covariance Structure Models. Sociological Methodology. 1986; 16: 159. doi: 10.2307/270922

40. Baron RM, Kenny DA. The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology. 1986; 51(6): 1173-1182. doi: 10.1037/0022-3514.51.6.1173

41. Goodman LA. On the Exact Variance of Products. Journal of the American Statistical Association. 1960; 55(292): 708-713. doi: 10.1080/01621459.1960.10483369

42. MacKinnon DP, Warsi G, Dwyer JH. A simulation study of mediated effect measures. Multivariate behavioral research. 1995; 30(1): 41-62.

43. Liu M. Corporate governance, auditor choice and auditor switch: Evidence from China [PhD thesis]. Hong Kong Baptist University; 2007.




DOI: https://doi.org/10.24294/fsj8170

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Omid Farhad Touski

License URL: https://creativecommons.org/licenses/by/4.0/