Auditor Switch Decision of Malaysian Listed Firms: Test of Determinants and Wealth Effect

Abstract

This article examines the economic rationale for auditor change by Malaysian listed firms by examining audit switch effect on share prices. The auditor change decision by management to retain or to change mohes a switch across audit firms with different quality. Audit quality is defined by classifying the audit firms into Tierl (Big-5) firms and Tier2 (non-Big 5) firms. The distinguishing attribute between the two groups of audit products is believed to be the credibility that each group brings to the audit management. Factors associated with the choice of audit firm and changes Firm characteristics associated with auditor choice were investigated using the logistic regression model. The findings show the auditor switch of Malaysian listed firms is partly explained by changes in management and turnover growth. Changes in firms' characteristics such as asset growth, purchase of fixed asset to total asset, leverage and changes in financing activities explain auditor switches. There appears to be no evidence of significant wealth effect from auditor switch announcements.