An Examination of SOX 404(b) Exemption Effects on Auditor Changes for Non-Accelerated Filers

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Abstract

We investigate whether the SOX 404(b) exemption caused an increase in auditor changes due to expected auditor-client misalignment. Prior literature finds that a regulatory shock can cause auditor-client misalignment. A logistic regression model is used to analyze a sample of Non-Accelerated Filers around the SOX 404(b) exemption. The results show a significant positive association between the SOX 404(b) exemption and auditor changes. These results identify an unintended consequence of the SOX 404(b) exemption, as prior literature has shown auditor changes to be costly to firms, both in financial and audit quality terms.

Authors

• Benjamin Hoffman, Kent State University

• Albert L. Nagy, John Carroll University