Auditor Resignations and Firm Ownership Structure

This paper investigates whether firm ownership structure alters the likelihood of auditor resignations and the associated stock market reaction in the U.S. over the period 2004-2008. Relying on prior research, we posit that family ownership aligns family members’ interests with those of minority shareholders reducing the likelihood of auditor resignations and attenuating the associated stock market reaction, especially in family firms managed by professional or founder CEOs. Logistic regression documents a lower likelihood of auditor resignations in family firms and in family firms managed by professional CEOs as opposed to non family firms. It also shows that auditors of family firms managed by descendant CEO (founder CEO) are more (less) likely to resign than those auditing family firms managed by a professional CEO (descendant CEO). OLS Regression documents that abnormal returns following auditor resignations in family firms and in family firms managed by a professional CEO are higher (less negative) than those in non family firms. Abnormal returns, however, do not vary based on whether a family firm is managed by a descendant or founder CEO. Results are robust to the selection bias arising from family ownership and contribute to the literature investigating auditor resignations and firm ownership structure