The Relation between Auditor Switching and Self-fulfilling Prophecy Effect: The Bivariate Probit Model

Abstract

This study investigates the adverse effects of auditor initial going-concern qualified opinion (IGCQ) on the stock and audit market employing the bivariate probit model on Taiwanese public firms. Results show that (1) unobservable interference factors may be responsible for the adverse market effects, (2) interaction exists between the stock and audit markets, (3) the probability of auditor switching is higher if the client is delisted from the market or influenced endogenously, (4) the self-fulfilling prophecy effect is not supported in the Taiwanese stock market; (5) one year after an IGCQ is issued, the client is more likely to switch auditors.

The effect of self-fulfilling prophecy on developing auditors' ethical values

“…The content of the items is based on the extent to which auditors' perceptions of auditors' capabilities, auditors' knowledge, auditors' audiences and auditors' effectiveness toward clients lead them to anticipate expected behaviors to better examine financial statements. Furthermore, the reliability of this questionnaire was approved based on Cronbach's alpha coefficient, which was estimated to be about 0.82 in the study by Ju Lin (2014). It was re-evaluated due to the modified content of the items, calculated to be 0.78.…”

“…The foundations of self-fulfilling prophecy theory in auditing are based on the perspective that the beliefs and expectations that determine auditors' value orientation are based on the code of professional conduct such as skepticism and objectivity, the fruit of community behaviors and expectations, shareholders, analysts, audit partners and so on. This effect will be much more pronounced in auditing when the stakeholder beliefs are promoted and the auditors are held accountable and further motivated to inspect any deviations from the reality (Ju Lin, 2014). Therefore, considering the importance of the level of development of behavioral theories in the IJOES 38,1 auditing profession to recognize the internal and psychological functions of auditors from a research perspective and increase fraud, tax evasion and bankruptcies of large companies in terms of application, the need to pay attention to the effect of command success on the inertia of auditors' behavior can lead to an increase in the level of decision-making functions and the quality of auditors' judgments based on independent arguments.…”