This paper shows that unfavourable audit reports cause significant falls in executive compensation. Economically, the effects are larger than accounting and market performance measures, and are particularly strong when: reports are modified for issues other than going-concern uncertainties; or,...

This paper reviews the literature on audit quality and auditor switching to assess different countries policy regimes. It argues that policy-makers should limit managerial influence over auditor switching rather than reduce auditors' economic dependency on clients. In particular, the paper...