استعفا در مقابل اخراج حسابرس : بررسی اثرات آن بر نقدینگی بازار و فعالیت های تجاری

This study addresses whether an auditor change (a resignation or a dismissal) mitigates information asymmetry as measured by market liquidity or trading activity. For auditor dismissals our results show no effect on our sample firms' market liquidity or trading activity. By contrast, for auditor resignation firms, the market liquidity tests indicate that the 12 month period preceding the 8K filing is characterized by rising information asymmetry. Also, our trading activity analysis suggests that the 8K auditor resignation filing is informative for individual investors but fails to support such informativeness for institutional investors. Our findings lend support for the SEC's decision to differentiate between auditor resignations and dismissals in the 8K. However, the resignation announcement does not appear to decrease information asymmetry subsequent to the 8K filing, which is inconsistent with the presumed SEC objective of maintaining public confidence in the securities markets as a level playing field by mitigating information asymmetry.

This paper is motivated by the question, does the additional disclosure about whether an auditor change is a resignation or a dismissal mitigate information asymmetry? Over the years, the Securities and Exchange Commission (SEC) has sought to discourage "opinion shopping" by requiring firms to publicly disclose an auditor change in their Form 8K filings . However, it was only in 1988 that disclosure of whether the auditor resigned or was dismissed was made mandatory . Although prior research indicates a differential stock price response to auditor resignation versus dismissal announcements, thus suggesting the usefulness of distinguishing between the two in the 8K filings, usefulness is a necessary but not a sufficient condition for mandatory disclosure (Lev, 1988) . Rather, SEC disclosure regulation is motivated primarily by its mandate to protect the investing public and maintain public confidence in the securities markets as a level playing field by mitigating information asymmetry (Lev, 1988 ; Levitt, 1998 ; Shefrin & Statman, 1992) . Information asymmetry implies an information gap between some (informed) investors and others based on private information search, i .e . the ability of informed investors to obtain information that is not publicly available or to extract private information from publicly available data . Differential access to information allows informed investors to increase their wealth at the expense of uninformed investors and is perceived by the U .S . Congress and the SEC to be unfair (Beaver, 1998) . As a practical matter, unequal access to information can have adverse social consequences in the form of reduced liquidity (higher transaction costs and thinner markets) as market makers respond defensively to a perceived increase in information asymmetry (Lev, 1988) . An auditor resignation, unlike a dismissal, is likely to be auditor (rather than client) initiated . Business Week (1993) and MacDonald (1997) indicate that resignations are related to unfavorable events within the client firm and may be triggered by one or more of the following : the auditor suspects management fraud (or otherwise distrusts client management), the client has weak internal controls, or the client's financial health is deteriorating . Potentially, a resigna- tion is indicative of future investor losses that might be realized as and when the full extent of the client's problems (such as fraudulent financial statements or financial distress) are eventually revealed . Consistent with the notion that lawsuits against auditors are almost always trig- gered by investor losses (Lys & Watts, 1994), DeFond et al . (1997) and Krishnan and Krishnan (1997) suggest that auditor resignations are motivated by the desire to avoid costly litigation and may be triggered by negative private information(obtained during the course of an audit) indicating a deterioration in the client's risk characteristics . Since a resignation indicates an increased probability that the client has a hidden risk, Bockus and Gigler (1998) predict analytically a decline in the client's stock price following an auditor resignation . Krishnan and Krishnan (1997) indicate that auditor resignation firms are more susceptible to events that trigger litigation than firms which dismiss their auditors . Their findings suggest that sophisticated investors may be able to use litigation prediction models to anticipate auditor resignations . Potentially, the time period leading up to the 8K auditor resignation filing is likely to be characterized by increasing information asymmetry between informed and uninformed investors . As noted previously, the increase in information asymmetry can be expected to have an observable effect in terms of reduced market liquidity . Further, as pointed out by Hakansson (1981), it takes resources to acquire private information . Potentially, institutional investors are likely to possess the necessary resources to acquire private pre-disclosure information and are there- fore less likely to be dependent on SEC mandated disclosures . By contrast, individual investors are much more likely to be dependent on SEC mandated disclosures . Hence, relative to their institutional counterparts, individual investors (because of their greater dependence on SEC mandated disclosure) can be expected to display heightened trading activity at the time of the 8K auditor resignation filing . In this study, we utilize intraday stock transactions data to examine whether the auditor resignation/dismissal announcement has differential effects on market liquidity (as measured by the effective spread, the adverse selection component of the spread, and quoted depth) over a time frame beginning 12 months before and ending 2 months after the announcement . In addition, we utilize the methodology described in Cready and Mynatt (1991) to examine the trading response surrounding the time of the 8K filing to identify the type of investor responding to the resignation/dismissal announcement . Our sample consists of all auditor change firms during 1995 and 1996 . Consistent with the notion that auditor resignations may be anticipated by informed investors (Krishnan & Krishnan, 1997), our results suggest decreasing market liquidity (increasing information asymmetry) for the resignation firms during the 12 months preceding the 8K filing . Although the public announce- ment of the auditor resignation appears to halt the trend towards lower liquidity, it does not improve liquidity . Also, the trading-based analysis suggests a strong response surrounding the disclosure of an auditor resignation but little or no response surrounding a dismissal . Our analysis indicates that this trading response occurs largely within lower size transactions, suggesting thatindividual investors rely on the 8K resignation announcement while institutional investors rely more on private pre-disclosure information . In the next section, we review prior research on auditor changes . Subsequent sections discuss our sample and data, the research methodology and design, and the empirical findings . The final section contains our concluding remarks

The prior literature (e .g . Lev, 1988 ; Levitt, 1998 ; Shefrin & Statman, 1992) suggests that SEC disclosure regulations are motivated primarily by its mandate to protect investors and to preserve public confidence in the capital markets as a level playing field by reducing information asymmetry between informed investors and others . Information asymmetry can have deleterious effects on market liquidity as measured by bid-ask spreads and quoted depths . Although the SEC has long required that auditor changes be made public in the Form 8K, mandatory disclosure of whether the auditor resigned or was dismissed is relatively recent . In this paper, we examined the differential effects on market liquidity and trading activity (across different investor groups) associated with auditor resignations and dismissals . Since our analysis was based on a limited sample of 22 resignation observations and 118 dismissal observations, the results must be interpreted with caution . In our analysis, we could not reject the null hypothesis that auditor dismissals have no effect in terms of either market liquidity or trading activity . These find- ings are consistent with prior research (using alternative methodologies) which indicate that the 8K auditor dismissal filing is not a significant information event . By contrast, for auditor resignations, our results suggest that the 12 month period preceding the 8K resignation filing is characterized by rising informa- tion asymmetry . Also, the results suggest that the resignation announcement is a significant information event for individual investors (as indicated by the abnormal increase in trading activity subsequent to the 8K filing for lower size transactions) . However, we were unable to reject the null that the resignation announcement is not an information event for institutional investors . These find- ings are consistent with the notion that informed investors may be able to anticipate auditor resignations based on publicly known litigation risk factors as discussed by Krishnan and Krishnan (1997) ." From a policy perspective, the overall results suggest that the SEC's deci- sion to differentiate between auditor resignations and dismissals in the 8K is informative for individual investors . However, in our analysis, we could not reject the null that the resignation announcement has no effect on information asymmetry subsequent to the 8K filing . Institutional investors may have some knowledge of the circumstances motivating the resignation (based on their ability to acquire private pre-disclosure information) . By contrast, individual investors are informed of the auditor resignation by the 8K but not of the reasons underlying the resignation . Current SEC disclosure standards do not require the client to disclose the reasons for the resignation and professional standards prohibit the auditor from disclosing the private information (acquired duringthe audit) that may have triggered the resignation . Possibly for these reasons, the 8K filing appears to halt the trend towards increasing information asym- metry during the 12 months preceding the resignation announcement, but does not actually reduce information asymmetry subsequent to the filing.