INTERNATIONAL JOURNAL OF MODERN MANAGEMENT & FORESIGHT

JOURNAL HOMEPAGE: IJMMF.COM ISSN: 2204-0072.

VOL. 1, ISSUE 4, PUBLISHED ONLINE on APRIL 2014, pp.133-145.

INVESTIGATING THE EFFECT OF AUDITOR CHANGES

ON STOCK PRICES OF THE COMPANIES LISTED IN
TEHRAN STOCK EXCHANGE
GHOLAMHOSSEIN MAHDAVI1, SAMAN MOHAMMADI*2
1
Associate Professor, Department of Accounting, Faculty of Economics, Management & Social Sciences, Shiraz
University, Iran. [email protected]
2*
PhD Student & Faculty member of Razi University, Kermanshah, Iran. [email protected]

ABSTRACT
The purpose of this paper is to investigate the impact of change of independent auditor on stock prices of
companies listed in Tehran Stock Exchange. Hence, the study population included all companies listed in
Tehran Stock Exchange, which comprises 312 views (change of auditors) have been selected as a sample for
analysis during 2003-2012. In this study, the targets of change of auditor are four groups which are categorized
as follows: change of auditor from Auditing Organization to auditing institutions which are members of Iranian
Association of Certified Public Accountants (IACPA) & visa-a-versa, change of auditor from small sized
auditing institutions which are members of Iranian Association of Certified Public Accountants (IACPA) to big
ones & finally change of auditor from big auditing institutions which are members of Iranian Association of
Certified Public Accountants (IACPA) to small sized ones. The relation between these changes is investigated
by 1 main & 4 secondary hypothesis. The results from testing research hypotheses which have been carried out
by linear regression, indicate that there is a significant relationship only between changes of auditor from
Auditing Organization to auditing institutions which were members of Iranian Association of Certified Public
Accountants (IACPA) & stock prices, thus all other secondary hypotheses of the research were rejected. So,
given that three of the four research sub-hypotheses were rejected, the results indicate that no significant
relationship between stock price & the change of auditor exists.

KEYWORDS: Auditor change, stock price, auditing quality, auditing organization, auditing institutes of
(IACPA).

1. INTRODUCTION
Economic decision making requires information that can help the resources available to give an optimal
allocation. One of the most important factors in accurately decision making is the appropriate & relevant
information related to the topic & decided that if unless properly provided & processed will follow with
negative effects for the individual decision maker (Vatanparast & Ghaemi, 2006: 86). The more the distribution
of information in societies, the better the possibility of consciously decision making & accountability of public
& private sectors on way of achieving & applying more resources are increased & the growth of corruption can
be reduced (Nobakht, 2007: 20). Therefore, transparency of information can play as one of the managers’ tools
of accountability.
Thanks to the crisis in 1929 in the USA the accountants were criticized severely for not presenting accounting
standards, particularly in procedure of equalizing, caused a need for presenting the audited financial statements
by stock firms in New York Stock Exchange. After the crisis, New York Stock Exchange in 1933 for the first
time asked all those companies requesting for application in New York Stock Exchange to present the audited
financial statements. In this audit, auditors should be about fairness & respect for the principle of sustainability
practices. And, for the first time they had to announce that those financial statements have been accomplished in
accordance with accounting accepted procedures (Hendriksen & Breda, 1992).
Ghosh (2007) states that the independent auditing which was obligatory because of the crisis of America in
1929, has been recently considered as a corporate monitoring factor. He believes that the internal & external
monitoring systems are complement or substitute for each other & both influence the validity of the company.
Ghosh (2007) also emphasized a substitution relationship between these two regulatory systems & stressed the
MAHDAVI & MOHAMMDI (2014) VOL1, NO.4, PP. 133-145

existence of a significant relationship between internal monitoring system & the validity of the company (quoted
from Mahdavi & Ghayoori Moghadam, 2011: 69). Therefore, one of the factors that caused the transparency of
company information is the external organization auditing of financial statements & of the other financial data
which facilitates the efficient operation of capital market through granting credits to financial statements. But,
because of some financial scandals such as Enron & WorldCom accounting scandal & the like, questioned the
independence of the auditors. This criticism was based on this notion that change of auditors leads to impair the
auditor’s independence & thus it results in discrediting financial statements. Also, some people like Knapp &
Elikai (1986) argue that increase in change of auditor damages the auditor’s ability to play an important role in
accrediting to financial statements. The U.S. Treasury (2008) implies that change of auditors is highly growing
& changes are still required to disclose the reason or if there is not enough. Therefore, it is necessary that the
Securities & Exchange Commission demands all American companies to disclose their reasons for changing
auditors.
Auditor changing phenomenon has attracted the attention of many academic circles & professionals in recent
years. This understanding of the audit services market & competition in the auditing profession has a special
importance. The disclosure requirements & the market reaction on behalf of changing auditors have been
created with aiming to discourage employer management to receive ideal auditing reports or the permit to use
typical accounting methods. In addition, the aim of disclosure requirements is that, the auditors could have more
independence to the statements which are not necessarily coincide with the employers’ preferences. The auditors
as the main accreditors to financial statements can have an impact on the company’s future value & the change
in company’s stock price. Lynch (2008) has shown that changing the auditors affects the reaction of the
investors & this influence is reflected in stock prices. Different researches like Cameran et al.(2008) & George
et al. (2009) also indicated that changing auditor leads to change in the investor’s reactions which in some cases,
this change negatively, & in other cases positively has affected the stock price. Therefore, this research question
is whether the auditor change in Iran has an impact on the stock price of companies listed in Tehran Stock
Exchange? & in case of impact, whether positive or negative impact? Thus, the main purpose of this study is to
consider the effect of the independent auditor on the price of stocks in companies listed in Tehran Stock
Exchange.

2. LITERATURE REVIEW & RESEARCH BACKGROUND

Independent Auditor

Auditing financial statements & other financial information are considered as the most important tools to ensure
transparency of companies’ information. Independent auditors refine the corruptions from financial information
through accrediting financial statements & other financial information which results in transparency of
companies’ information. Accordingly, auditing financial statements by independent auditors is considered as
one of the main requirements of the world’s different Stock Exchange markets (Bulow et al., 2011: 113).
According to Standard No. 200, Accounting Standards in Iran:
Financial statement Audit is one of the types of assurance services. Assuring
service is a kind of service through which the auditor gives his own opinion
about the result of evaluation or measurement of a subject based on pre-
determined criteria, to increase the considered customers’ assurance (Iran
Auditing Standards, 2008, Standard No. 20: paragraph 3).
According to Standard No. 210, International Standards on Auditing (2008),
The independent auditor is one whose aim is to be certain that the financial
statements lack any significant deception caused by mistake or fraud, & based on
his auditing findings he presents his report on financial statements (International
Standards on Auditing, (2008), Standard No. 210, paragraph 13).
According to Schelker & Eichenberger (2010) “An independent auditor is one who by reviewing
& revising the financial information causes reducing costs of information & agency problems
between citizens & the government” (Schelker & Eichenberger, 2010: 359).

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Change of auditor

Francis & Wilson (1981) state that the change process of auditor is divided into two stages, since the reasons
related to dismissing the previous auditor might not have any relation to the specific criteria used to modify the
new auditor, in the first stage, the company decides to change the auditor & in the next stage, selects a new
auditor (quoted by Mahdavi & Ebrahimi, 2011: 117). On the other hand, Charles et al (2010) believe that in
general selecting an auditor is an economical decision. The employer purchases the auditing services according
to his own expected level of quality by its lowest cost from the seller (the auditor), & the change of auditor is a
response to the changes in the amount & type of services required by the employer. Choosing an auditing
institute is an important decision for the existence of stock companies, & the decision for changing auditors
should not considered as easy, or unimportant (Davidson et al., 2006: 70). In the recent decade, due to some
financial scandals such as Enron, WorldCom companies & the like, the independence of auditors was
questioned. Governing constitutions in accounting career & marketing investment have offered or necessitated
the regular alteration of auditors with the aim to improve the independency of auditors, & they have conducted it
(Li, 2007). There are different views in relation to the change of auditor process that some of them are described
below.
Supporters of the Periodic change of auditors state that the long- run relationship of an auditor with the employer
makes auditor's independence would undermine & the credibility of the auditor's report is questioned (U.S.
Senate, 2002). Cameran et al (2008) believe that the auditor alteration procedure leads to increase the investors’
trust the prepared reports by the auditors, therefor, the auditors’ motivation to find & report the significant
distortions increase regarding the investors’ trust (Cameran et al., 2008: 1). On the other hand, Giger &
Rajonandan (2002) argue that there are much more mistakes in the reports of new auditors, & this conclusion is
made because of the conditions of auditors who are affected by their own first year of work, so, changing the
auditor & subsequently entering a new auditor reduce the auditing quality & transparency of information in
preliminary years. Hamilton (2011) believes that the periodic change of an auditor questions the accreditation as
the main role of the auditor on one hand, & on the other, the relationship between the employer & the auditor
may also be altered.
Also, the change of auditors increases the risk of auditor & the quality of audit reduced. Tanyi et al (2010), states
that the time of delay in presenting the report of auditor for the companies which regularly change their auditors,
is much more than those with less changes. Besides, Rakow et al (2010) believe that auditing constitutions are
divided into two groups of international & regional auditors, & if changing an auditor is from a regional auditor
to another regional one, it considers as a red mark & it should be examined more carefully. The background of
changing auditor in Iran also shows that the process of changing independent auditors in the past years has not
existed in the form of legal, compiled & formal substances because of the limitation of auditing to some big
institutions such as the organization of national industry, programming organization, the auditing constitution of
oppressed foundation & Shahed auditing constitution, & only some responsible auditing groups performing
some specific work under the supervision of the managers of the institution have changed. In 1998, the auditing
organization was formed with merging these institutions. In this organization, due to the diversity & multiplicity
of the employers, in order to control & further evaluation, the working groups in charge of auditing with average
time of three years are changed. This replacement may abdicate the responsibility of performing audition from
the manager of a company & transforms it to that of another one. Therefore, the changing process is exclusively
taken place between different groups inside the auditing organization & it is not included in the changing
auditors’ regulations, as it is in the other countries. But finally by legislating the instructions of the auditing
institutions reliable to the Stock Exchange & Securities Organization on August 18th, 2008 by the Supreme
Council of Exchange & Securities, the regular changing of independent auditor was necessitated for a period of 4
years & all the accessible companies in Tehran Stock Exchange & other individuals under the control of Stock
Exchange & Securities Organization are obliged to observe it.

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Stock Price

One of the purposes of accounting is to provide information for investors & analysts to help them predicate the
outcome of the stock of the companies. If the accounting information for explaining outcome is useful, then a
change in accounting data should lead to a change in the outcome of the stock of the companies.
Xing & Anderson (2011) state that in fact the stock price is represents the extent of the market & company
information. Moreover, Na & Sohn (2011) argue that the stock price is under the influence of some factors such
as international environment, governing policies, domestic political & economic environment, general
psychology, & rumors. Some of these factors have long-term & some have short term effects (Na & Sohn, 2011:
9046). Chen & Zhang (2007) believe that there is a meaningful relation between the financial variables such as
efficiency gains, percentage of owners’ investment, changes in profitability, changes in growth opportunities &
changes in the discount rate with outcome. Clubb & Naffi (2007) to perceive the value-laying foundation of the
companies, studied the outcome of the owners’ payment & the proportion of the office value to the marketing
value, & they concluded that these two parameters explain the most part of the stock outcome of the British
companies. Pourheidari (2011) in a research, studied the determining factors in changing the stock price, &
showed that how fundamental parameters explain the change in the outcome. The results of his research reflect
that the stock outcome depends on the outcome profit, the owners’ investment, the change in profitability, the
changes in growth opportunities, & the discount rate.

Research background

Ja’afari (2009) in his research studied the circle of auditing institutions & their effects on the auditing quality of
the accessible companies in Tehran Stock Exchange Market, & having studied the factors in finding the existent
misreports in financial statements (the auditor’s qualification) & the report of the discovered distortions (the
auditor’s independence) he came to this conclusion that the circle of auditing institutions does not result in
increasing the auditing quality.
Rezazade & Zaree Moravej (2010) examined the recognition of the effective factors on changing auditors in
Iran & concluded that the auditor’s payment, the quality of the auditor’s work, changing the companies’
managers, the size of the company & the rate of companies’ returning assets have an effect up to 95 assurance
on changing auditors by companies & the conditioned consideration, increase in the selling rate of the
employer’s company, the abundant rate of the long term installment in relation to the asset of the employer’s
company, the abundant rate of the short term installment in relation to the asset of the company’s manager &
increase in the asset of the employer’s company have no effect on changing the auditors of the companies.
Karami & Bazrafshan (2011) by studying the previous researches & viewpoints on changing auditors stated that
the phenomenon of change of auditor accompanies with a group of positive & negative effects. Since the critics
of this phenomenon emphasize on the increase of auditing costs in their criticisms, perhaps the most appropriate
way to solve is changing the auditing partners & employees instead of changing auditing institutions. Therefore,
the independency of the auditors is maintained & the auditing costs will not increase much.
Mahdavi & Ebrahimi (2011), by studying the effective reasons on changing auditors concluded that although the
existing general assumptions that considered the change of auditor by companies resulted from some factors
such as receiving a valid consideration, the earning management, avoiding fraud & the management
performance failure, sometimes companies change their auditors to improve their own performance. Moreover,
they concluded that the successor auditing institutes do not permit those masters who have changed their
auditors in order to strengthen their management position & manipulate earnings. In addition, they do not
necessarily receive any valid consideration.
Schwartz & Soo (1995) through a research, examined the informative content of 8-k form in the span of 5 years
from 1987-1992 for 48 companies listed in New York Securities & Stock Exchange Market. The result of their
research indicated that the Stock Market does not have any reaction to the existent information in 8-k form.
Turner et al (2005) in a research examined the reasons for changing auditors in America. The result of their
research showed that the stock price sharply lowered after the change of auditor. Moreover, the results implied
that it is difficult to attribute the price drop only to one factor, & this issue requires further investigation.
Camran et al (2008) in their study examined the Italian Stock Exchange companies to identify the effect of
auditor changes on audit quality in which their information regarded with the change of auditor was existed
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during 9 years from 1995-2004. The results of their research represented that change of auditor causes an
increase in the auditing quality & changes the reactions of the investors which this change in some cases has a
negative effect on the stock price & in other cases it has a positive effect.
Jakson et al (2008) in a research entitled “Periodic change of auditor & audit quality” examined 224 Australian
companies over the 8-year period 1995 to 2003. The results of this research represented if the change is taken
place because of the removing the hypothesis of not continuing the operation, then auditing quality will
increase, & if it is because of some factors such as the reduction of the auditing cost, it will not have any effect
on the auditing quality.
George et al (2009) in their research concluded that the investors’ respond to auditor changes may be positive or
negative depending on its reason. If the change is taken place since the auditors cannot trust the management
honesty, it leads to the negative reaction of the investors, & if the change is occurred because the company looks
for another institution to offer better services, then it will lead to the positive reaction of investors.
Chang et al (2010) in a research entitled “The Market Reaction to of Auditor Changes from 4 Big Auditing
Institutions to Smaller Auditing Institutions”, studied the information of 176 companies in the span of 6 years
from 2002 to 2008. The results of their research indicated that the change from 4 big auditing institutions to the
other auditing institutions will cause a positive reaction of the Market & the increase in the stock price. To
explain their reason, they stated that this change will lead to decrease the cost of auditing without any decrease
in the auditing quality.
Numata & Takeda (2010) studied the information of 254 Japanese companies which changed their auditor in the
year 2004, in order to recognize the relationship between changing auditor & the stock price. Their research
results implied that there is a significant relationship between the market reaction & the stock price of Japanese
companies & the lack of success of the auditing team to reach their goals.
Skinner & Srinivasan (2010) studied the relationship between changing auditor & the auditing quality of 2199
Tokyo stock companies during 6 years from 2002 to 2008. Their research results represented that in most cases,
changing auditor leads to increase the auditing quality & investor’s confidence in the accomplished auditing.
Ebimobowei & Keretu (2011) in their research, distributed 250 questionnaires between investors in Nigeria in
order to identify the impact of auditor change on the quality, cost, & the independence of the auditor, & after
collecting the questionnaires & analyzing them, they concluded that the temporal change of auditor in some
cases results in the increase of the auditing quality & the positive reaction of the investors, & also the increase in
the stock price, but in the other cases it does not have any effect on the auditing quality.

3. METHODOLOGY
The Research Hypothesis

The main objective of this research is to answer the question of “Does changing the independent auditor have
any effect on the stock price of the companies listed in Tehran Stock Exchange Market?” In order to answer
this question, five hypotheses including a main hypothesis & four sub-hypotheses have been developed. In this
research, Auditing Organization has been considered separately in the first two hypotheses, since Auditing
Organization is a public institution, so it may affect the results of the research, so in the third & fourth
hypotheses, Auditing Organization has been omitted from the list of the selected auditing institutions, & the
other auditing institutions which are the members of Iran Formal Accounting Society have been categorized
based on their amount of income to big & small. The research hypotheses are stated in the following.
The Main Hypothesis: There is a significant relationship between the change of the independent auditor &
the company's stock price.

The Subsidiary Hypotheses:

1. There is a significant relationship between the changes of auditor from Auditing Organization to
auditing institutions which were members of Iranian Association of Certified Public Accountants
(IACPA) with the change in the stock price of the companies listed in Tehran Stock Exchange Market.
2. There is a significant relationship between the changes of auditors from the auditing institutions which
were members of Iranian Association of Certified Public Accountants (IACPA) to Auditing

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Organization with the change in the stock price of the companies listed in Tehran Stock Exchange
Market.
3. There is a significant relationship between changing auditor from small auditing institutions which
were members of Iranian Association of Certified Public Accountants (IACPA) to big auditing
institutions which were members of Iranian Association of Certified Public Accountants (IACPA), with
the stock price of the companies listed in Tehran Stock Exchange Market.
4. There is a significant relationship between the changes of auditors from big auditing institutions which
were members of Iranian Association of Certified Public Accountants (IACPA) to small auditing
institutions which were members of Iranian Association of Certified Public Accountants (IACPA) with
the change in the stock price of the companies listed in Tehran Stock Exchange Market.

Research Method, Data Collection & Analysis

This research is practical & uses the quasi-experimental design & the post event approach. This method is used
when the data is collected from a natural environment or from a phenomenon in which the researcher has had no
direct interference. Since the researcher has no interference in the data, so it includes a high external validity
(Namazi, 2001: 39 & 49).
For collecting data & information in this research, the library method is used. The theoretical fundamentals of
this research have been collected from Latin & Persian expert books & magazines, & the necessary data has
been collected through the audited financial statements, explanatory reports, monthly & weekly reports of the
Securities Stock Exchange Journal, studying & research websites of the Securities Stock Exchange & the other
reliable websites, & the second version of Tadbir Pardaz Software. The variables of this research have been
calculated by Excel Software 2010, & the test of the research hypotheses, along with their results, have been
analyzed the outputs from SPSS Software version 19.
To analyze the statistical data & to test the hypotheses of the research, the descriptive statistics (mean &
standard deviation), & the inferential statistics have been used. In the inferential statistics, the correlation
coefficient, determination coefficient, & the simple linear regression model have been used.

The population & sample

The population of this research contains all companies listed in Tehran Stock Exchange Market which, at least
have been working for consecutive years from 2003-2012.
No statistical sampling in this research has been done & analyzing has been performed on all components of
society. But, in order to select the companies, the following presuppositions have been taken into
consideration.1- The company has been working at least for 2 years out of the recent eight years in the Stock
Market & has presented its financial reports to the Stock Market through these years, 2- The end of the fiscal
year of the company should be on 29 th of Esfand annually, 3- the company has selected 29th of Esfand as the end
of its fiscal year for 2 permanent years, 4- The selected company should not be a part of a financial or investing
companies.

4. RESULTS
Data Analysis

Regarding that the independent variables of this research are of the nominal type, so presenting the descriptive
statistics will not be useful, & no specific information will be transformed to the reader. Therefore, the
descriptive statistics is not presented for independent variables. However, in Table 1, the number of selected
companies alongside with the amount of change of each one of the independent variables based on different
years has been indicated.

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Table 1. The number of selected companies & the independent variables change
Year 2004 2005 2006 2007 2008 2009 2010 2011
Type of N % N % N % N % N % N % N % N %
Change
1 to 2 24 63 33 62 15 40 11 38 9 18 6 18 5 15 6 15
2 to 1 2 5 2 4 1 3 1 3 2 4 1 3 2 6 1 2
3 to 4 0 0 1 2 5 13.5 4 14 8 16 3 9 6 18 7 18
4 to 3 0 0 2 4 6 16.5 1 3 4 8 4 12 5 15 4 11
Other 12 32 15 28 10 27 12 42 26 54 20 58 15 46 21 54
Total 38 100 53 100 37 100 29 100 49 100 34 100 33 100 39 100
1- Audit Organization, 2- auditing institutions which were members of Iranian Association of
Certified Public Accountants (IACPA), 3- small auditing institutions which were members of
Code
Iranian Association of Certified Public Accountants (IACPA), 4- big auditing institutions
which were members of Iranian Association of Certified Public Accountants (IACPA)

Normality & independence of errors

Table 2 indicated the results from studying the independence & normality of errors for the first quarter sub-
hypotheses.
Table 2. The results of the independence & normality of errors
Durbin- Errors
Correlation Coefficient of Average Independenc Errors of
Hypothesis Watson of
coefficient determination errors e of errors normal
statistic variance
Hypothesis
0.240 0.058 1.882 0 0.994  
1
Hypothesis
0.178 0.032 1.903 0 0.994  
2
Hypothesis
0.203 0.041 1.913 0 0.994  
3
Hypothesis
0.185 0.034 1.915 0 0.994  
4

According to Table 2 for all hypotheses, the independence of errors (since their Durbin-Watson amounts are
between 1.5 & 2.5) is acceptable. Also, studying the mean & variance of error reflects the normality of errors,
since according to Table 2 the mean of errors equals zero & their variance is almost (0.994) equals one.
Therefore, here regression model can be used.

Hypothesis Testing
The First Sub-Hypothesis Testing
Table 3, respectively, indicates the results of examining F statistic, the regression model coefficients, & the test
of the first sub-hypothesis.

Table 3. F-statistic values, sub-index coefficient regression model & test hypotheses
F Meaningfulness of the
Hypothesis Dependent variable P-Value
Statistic whole equation
Change price 4.692 0.001 
the
Regression Approval or
estimated ß T P-Value
models rejection
amount
Constant -5.984 -2.919 0.004
Hypothesis 1 Independent -17.692 -0.164 -2.914 0.004
variable
Company size 4.459 0.156 2.794 0.006 Approval
Financial 9.628 0.063 1.104 0.270
leverage
Return on assets -2.825 -0.008 -0.143 0.887
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As Table 3 shows the amount of P-value related to F statistic is lower than 0.05, so, the total regression model is
significant. Also, the independent variable P-value & constant coefficients are lower than 0.05, therefore, they
are significant, & all the other coefficients for containing P-values more than 0.05 are not significant. So, the
results of the estimate of the models related to the first sub-hypothesis reflect that there is a significant &
negative relationship between changing auditor from Auditing Organization to auditing institutions which were
members of Iranian Association of Certified Public Accountants (IACPA) with the stock price.

The Second Sub-Hypothesis Testing

Table 4 respectively indicates the results from studying F statistic, the regression model coefficients & the
second sub-hypothesis testing.

Table 4. F-statistic values, sub-index coefficient regression model & test hypotheses
Meaningfulness of the whole
Hypothesis Dependent variable F statistic P-Value
equation
Change price 2.507 0.042 
Regression The estimated Approval or
ß T P-Value
models amount rejection
Constant -59.502 -3.406 0.001
Independent 2.707 0.010 0.175 0.861
Hypothesis 2
variable
Company size 4.946 0.173 3.024 0.003 Rejection
Financial 6.133 0.040 0.700 0.484
leverage
Return on assets -6.882 -0.020 -0.020 0.735

As Table 4 indicates the amount of P-value related to the F statistic is lower than 0.05, so the total regression
model is significant. But only the coefficients of P-value of variable amounts & constant coefficient are lower
than 0.05, & they are significant, & the other coefficients because of containing P-values more than 0.05 are not
significant. Therefore, the results from the estimation of the related model to the second sub-hypothesis reflect
that there is no significant relationship between changing auditor from auditing institutions which were
members of Iranian Association of Certified Public Accountants (IACPA) to Auditing Organization with the
stock price.

The Third Sub-Hypothesis Testing

Table 5 respectively indicates the results from examining F statistic, the regression model coefficients, & the
third sub-hypothesis testing.

Table 5. F-statistic values, regression model coefficients & the third sub-hypothesis testing
Meaningfulness of the
Hypothesis Dependent variable F statistic P-Value
whole equation
Change price 3.293 0.012 
the
Regression Approval or
estimated ß T P-Value
models rejection
amount
Constant -61.605 -3.536 0.000
Independent 16.442 0.098 1.753 0.081
Hypothesis
variable
3
Company 4.902 0.172 3.012 0.003
size Rejection
Financial 6.654 0.044 0.763 0.446
leverage
Return on -3.479 -0.010 -0.174 0.862
assets

As Table 5 shows the amount of P-value related to F statistic is lower than 0.05, so the total regression model is
significant. But only the coefficients of P-value of variable amounts & constant coefficient are lower than
0.05, & they are significant, & the other coefficients because of containing P-values more than 0.05 are not
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significant. Therefore, the results from the estimation of the related model to the third sub-hypothesis reflect that
there is no significant relationship between changing auditor from small auditing institutions which were
members of Iranian Association of Certified Public Accountants (IACPA) to big auditing institutions which
were members of Iranian Association of Certified Public Accountants (IACPA) with the stock price.

The Fourth Sub-Hypothesis Testing

Table 6 respectively indicates the results from examining F statistic, the regression model coefficients, & the
fourth sub-hypothesis testing.

Table 6. F-statistic values, regression model coefficients & the third sub-hypothesis testing
Meaning the whole
Hypothesis Dependent variable F statistic P-Value
equation
Change price 2.728 0.029 
the
Regression Approval or
estimated ß T P-Value
models rejection
amount
Constant -58.068 -3.319 0.001
Independent -9.964 -0.053 -0.941 0.348
Hypothesis 4
variable
Company size 4.908 0.172 3.004 0.003
Rejection
Financial 6.027 0.039 0.689 0.491
leverage
Return on -7.199 -0.021 -0.359 0.720
assets

As Table 6 indicates the total regression model equation is significant because the amount of the P-value related
to F statistic is lower than 0.05. Also, the related statistic to the amounts of t & the level of significance implies
that the coefficient of the independent variable is not significant, therefore, according to the above model, we
can say that there is no significant relationship between changing auditor from big auditing institutions which
were members of Iranian Association of Certified Public Accountants (IACPA) to the small auditing institutions
which were members of Iranian Association of Certified Public Accountants (IACPA) with the stock price.

5. CONCLUSIONS & RECOMMENDATION

Based on the results from analysis of research hypotheses, except the first sub-hypothesis, all of them were
rejected. In the first sub-hypothesis, the relationship between the changes of auditor from Auditing Organization
to auditing institutions which were members of Iranian Association of Certified Public Accountants (IACPA)
was examined. The results from the estimation of this model represent that there is a negative significant
relationship between the two mentioned variables, In fact, based on existing literature & results of research
conducted in the field of auditing & auditor choice in Iran (Ebrahimi Kordrdloo & Seyedi, 2009, Nonahalnahr et
al., 2011, & Mahdavi et al., 2011) Auditing Organization has been intended as an indicator of auditing quality.
In fact, we expect that the change of auditors from the organization to all the other auditing institutions leads to
a potentially decrease in the quality of auditing. This subject is also taken into consideration by the investors in
the Stock Market & results in the reduction of the stock price. The second sub-hypothesis examined the
relationship between the change of auditor from auditing institutions which were members of Iranian
Association of Certified Public Accountants (IACPA) to Auditing Organization & the stock price which was
rejected, but according to the information included in Table 4, we can say that although the relationship between
changing auditor from auditing institutions which were members of Iranian Association of Certified Public
Accountants (IACPA) to Auditing Organization with the stock price is not significant, this relationship is
positive. It means that changing auditor from auditing institutions which were members of Iranian Association
of Certified Public Accountants (IACPA) to Auditing Organization potentially has a positive effect on the
investors’ content & causes a relatively (although not as significantly) increase in the stock price. Auditing
Organization in this research is taken into consideration separately in the two first sub-hypotheses, since
Auditing Organization is a public institution & this feature may affect the results of the research. Auditing
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Organization has been omitted from the third & fourth hypotheses from the list of the selected auditing
institutions, & based on the researches by Lin & Ming (2009) & Zare (2011) the auditing institutions which
were members of Iranian Association of Certified Public Accountants (IACPA) have been categorized
according to their amount of income to big & small. The results from testing these hypotheses represent that
there is no significant relationship between changing auditor from small auditing institutions which were
members of Iranian Association of Certified Public Accountants (IACPA) to those big auditing institutions
which were members of Iranian Association of Certified Public Accountants (IACPA) & the stock price, & also,
between changing auditor from those big auditing institutions which were members of Iranian Association of
Certified Public Accountants (IACPA) to those small auditing institutions which were members of Iranian
Association of Certified Public Accountants (IACPA) & the stock price. According to the results taken from
these sub-hypotheses, we can state that there is not any significant relationship between changing auditor & the
change in the stock price. It seems that this result is reached because Tehran Stock Exchange market & the
auditing institutions in Iran are new, & besides, the lack of sufficient knowledge of market in this field can be
considered as another reason. The mentioned results are in agreement with the results of the researches done by
Schwartz & Soo (1995), & Jackson et al (2008) from the point of the significance relationship, but they are in
conflict with those of Turner et al (2005), Camran et al (2008), George et al (2009), Chang et al (2010), Numata
& Takeda (2010), Skinner & Srinivasan (2010) & Ebimobowei & Keretu (2011).

The change of auditor phenomenon has attracted the attention of many academic circles & professional activists
in recent years. This phenomenon is essential from the viewpoint of perception of the market circumstance in
auditing services & the rate of competence in accounting profession. The requirements to reveal & the market
reaction to changing auditors with the purpose of disappointing the management master to receive the desirable
auditing reports, or to gain the permission to exploit specific accounting methods. Therefore, the aim of this
research was to study the relationship between change of auditor & the stock price in the companies listed in
Tehran Securities Stock Exchange Market. To reach this purpose, a main hypothesis & 4 sub-hypotheses were
formulated. Having studied & tested the hypotheses, only the first one, which was about the relationship
between changing auditor from Auditing Organization to those auditing institutions which were members of
Iranian Association of Certified Public Accountants (IACPA) & the stock price, was approved & the other three
sub-hypotheses (2, 3 & 4) were rejected. So, regarding the results from the sub-hypotheses, we can state that
there is no significant relationship between changing auditor & the change in the stock price. According to the
importance of the change of auditor based on the results of this research: a. according to the significant
relationship between the change of auditor from Auditing Organization to those auditing institutions which were
members of Iranian Association of Certified Public Accountants (IACPA) & the stock price, & the importance
of this change from the viewpoint of investors, we recommend the Securities & Stock Exchange Market to
provide some forms like 8-k so that the companies which change their auditors are obliged to mention their
reasons, b. investors are recommended to make decision to consider not only fiscal & non-fiscal variables but
also mind some other information such as the change of auditor & the reasons for this change.

Suggestions for Further Studies

1. Repeating this research with regard to different periods to examine the stock price changes.
2. Repeating this research using some other criteria such as number of employees, the year of the
foundation, the previous record, to categorize the auditing institutions which were members of Iranian
Association of Certified Public Accountants (IACPA) to big & small auditing institutions.
3. Repeating this research with regard to & by using the control variables such as the company’s history,
the ownership structure, liquidity, etc.
4. Studying the relationship between some variables such as the reputation of the auditing institution &
changing the partners of the auditing institution & the stock price of the companies.

Limitations of Research

1. In the process of a scientific research, there are some cases which are beyond the control of the
researcher, & potentially, they can affect the results of the research. The aim of this research is to study
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the relationship between changing auditor & the stock price of the companies. Therefore, the effects of
some variables were controlled by the researcher. So, the effects of the other possible variables such as
industry type, the company’s history, the ownership structure, liquidity & profitability on the results of
the research should be taken into consideration in using the findings of the research.
2. In this research, in order to study the effect of changing auditor on the stock price, the periods of 100
days before the date of general assembly & 30 days after that have been considered which with
regarding a different period the effect of changing auditor on the stock price has a better reflection.
3. In this research, in order to categorize those auditing institutions which were members of Iranian
Association of Certified Public Accountants (IACPA) to big & small, we use their amount of income,
which may become different by considering other variables such as the number of employees, the year
of foundation, & how much experience they have, so, for those auditing institutions which were
members of Iranian Association of Certified Public Accountants (IACPA), the manner of
categorization may be different from that of this research.
4. To select the companies, those one were chosen that the end of their fiscal year was 29 th of Esfand.
Regarding those other companies whose end of their fiscal year is different, the effect of changing
auditor on the stock price will be better reflected.

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