Date of Graduation

5-2014

Document Type

Dissertation

Degree Name

Doctor of Philosophy in Business Administration (PhD)

Degree Level

Graduate

Department

Accounting

Advisor

Linda Myers

Committee Member

Cory Cassell

Second Committee Member

Junhee Han

Keywords

Auditor, Auditor Ratification, Audit Quality, Corporate Governance, Proxy Advisors, Shareholder Voting

Abstract

The auditor ratification vote allows shareholders to voice their opinions on audit-related issues. Motivated by regulatory concerns about third party proxy advisors that provide summarized voting recommendations to subscribing shareholders, this study investigates: i) the determinants of proxy advisors' recommendations on auditor ratification (For or Against), ii) whether these recommendations affect voting outcomes, and iii) whether an Against recommendation leads to subsequent changes in the auditor-client relationship. The results indicate that proxy advisors are more likely to recommend that shareholders vote Against auditor ratification when the engagement letter limits the auditor's liability, when the auditor provides excessive nonaudit services, and when audit quality appears to be low. While the association between proxy advisor recommendations and shareholder voting is statistically significant, it does not appear to be economically significant when compared with the results from prior studies examining the influence of proxy advisors in other settings. Finally, when using a matched sample design, neither proxy advisor recommendations nor shareholder voting outcomes are associated with subsequent changes in the auditor-client relationship, suggesting that companies do not respond to voiced concerns about the auditor. These findings should be of interest to researchers examining the impact of the auditor ratification vote and to regulators evaluating the involvement of proxy advisors in auditor ratification.

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