A Contingent Model of Intra-Big Eight Auditor Changes.

Abstract Despite widespread interest in the reasons why companies change auditors, very few studies have investigated the contingent nature of various auditor-change factors, the relative levels of importance of those factors, or intra-Big Eight auditor changes. Using data from a sample of 5,154 publicly traded companies and a robust recursive partitioning algorithm model-building technique, this study develops a broad-based descriptive model for classifying intra-Big Eight auditor changes that addresses these issues. The model presented here is validated and correctly classifies 56 percent of the companies changing auditors. Prominent among the results is the complex contingent relationships of the independent variables. In relative terms, the variables for client financial distress, size, and growth, along with audit-firm expensiveness and industry dominance, were found to be the most important factors associated with auditor changes, whereas audit-firm quality and percentage change in client ownership were moderately important. Three other variables included in the model--audit-firm prestige, audit opinion, and the existence of an initial public stock offering by a client--were found to be relatively unimportant auditor-change factors.