- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
Purpose – This study aims to examine the consequences when audit committees have different economic incentives (i.e. incentive-based compensation) to switch auditors. Design/methodology/approach – The author focuses on companies experiencing an auditor switching event (client-initiated dismissals) and uses Heckman’s (1997) two-stage estimation procedure to control endogenous bias. Audit committee quality is measured by the level of incentive-based compensation. Accrual quality and abnormal audit fees are examined over the periods of auditor switches. Findings – Using 1,087 US companies between 2006 and 2014, the author found that audit committees’ incentive-based compensation is negatively (positively) associated with accruals quality (abnormal audit fees) only when companies switch from Big 4 to non-Big 4 auditors or switch within non-Big 4 auditors. For companies that switch from non-Big 4 to Big 4 auditors, she found no evidence. Research limitations/implications – This study provides a detailed discussion of the consequences of audit committee quality. The findings also contribute to the literature by concluding that economic incentives are associated with ineffective oversight, particularly after auditor switches. Practical implications – Sarbanes–Oxley Act and its associated regulations significantly expanded the oversight role of audit committees. However, regulators bypassed restrictions on audit committee compensation. Accordingly, the author suggests that regulators focus on the issue of economic incentives to improve audit committee quality. Originality/value – Minimal research has been conducted on the role of audit committees when companies switch to a new external auditor. The author shows that when companies switch auditors, incentive-based compensation significantly affects the monitoring quality of audit committees.
This study determined whether incentive-based compensation for ACs affects accruals quality and abnormal audit fees when companies employ a new auditor. The empirical results suggest that the negative effect of incentive-based compensation on accruals quality exists only for companies switching from Big 4 to non-Big 4 auditors or switching within non-Big 4 auditors. Incentive-based compensation for ACs is positively associated with abnormal audit fees only when companies switch from Big 4 to non-Big 4 auditors or switch within non-Big 4 auditors. Generally, based on client-initiated dismissals between 2006 and 2014, I find evidence that a negative relationship exists between incentive-based compensation and AC oversight effectiveness, primarily when companies switch to non-Big 4 auditors. The results are robust across a battery of sensitivity checks. Many recent articles and the financial press have suggested that SOX has resulted in a structural change in the US audit industry (Ahmed, 2010), in particular regarding the switch from Big 4 to Non-Big 4 firms that occurred after SOX. I offer evidence concerning the influence of AC quality for companies changing auditors. The economic incentives of AC members may serve as a basis for future research on auditor changes. This study provides practical implications, and investors will be interested in the results of this paper when assessing AC quality. SOX and its associated regulations significantly expanded the oversight role of ACs [Bochner and Blake, 2008; Securities and Exchange Commission (SEC), 2003]. However, regulators did not establish restrictions on AC economic incentives. One of the important implications of this study is that AC compensation may affect members’ independence when it is in the form of equity compensation.