The Effect between Audit Quality of Audit Firm Size and CEO Turnover
Date Issued
2010
Date
2010
Author(s)
Liao, Chia-Ming
Abstract
I examine whether audit quality affects the marginal impact of accounting performance on CEO turnover decision, because quality financial statements are supposed to facilitate a correct CEO dismissal decision. Specifically, I expect a stronger association between CEO turnover and firm performance for companies that retain the Big 4 audit firms than companies with the other audit firms. Using a sample of 1,218 publicly-traded company-years in Taiwan between 1997 and 2008, however, I find no support to my hypothesis. The sensitivity of CEO turnover likelihood to accounting performance is not higher for companies retaining the Big 4 audit firms than the other companies. This conclusion holds even when discretionary accruals are added to control for earnings management. However, companies audited by the Big 4 tend to perform better than the other companies. This positive association between firm performance and audit firms may weaken the relationship between CEO turnover and accounting performance. Finally, the results imply that CEO from founding family are more likely to reduce the possibility of turnover.
Subjects
CEO turnover
audit quality
earnings quality
auditor size
Type
thesis
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