The shareholder wealth effects of auditor changes and auditor opinions: Does a difference exist in a pre-sox versus post-SOX environment?
In 2002, Congress enacted the Sarbanes-Oxley Act (SOX) in response to various fraud scandals. SOX implementation may have led to a rise in auditor switches, a shift in the risks and increase in the costs associated with auditing, a rise in auditor conservatism in the issuance of unqualified audit reports and a shift in investor reactions to qualified audit reports. We examine investor reaction to auditor switches for both unqualified and qualified opinion firms in an unexpected earnings disclosure context in both pre- and post-SOX environments. We find no difference exists in investor reaction for unqualified opinion firms with or without auditor switches in pre- and post-SOX environments. Investors demonstrate significant negative share price responses to qualified opinions in a post-SOX environment (with or without an auditor change). The results indicate that investors ' perceptions of a qualified opinion changed after SOX took effect. Investors place more value on an unqualified opinion in a post-SOX environment. This may be due to shifts in auditor thresholds and litigation risks.
Stunda, R., & Pacini, C. (2013). The shareholder wealth effects of auditor changes and auditor opinions: Does a difference exist in a pre-sox versus post-SOX environment? Academy of Accounting & Financial Studies Journal, 17(4), 29-40.
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