The impact of ethnicity on auditor choice: Malaysian evidence

Abstract

Purpose

The purpose of this paper is to examine the impact of ethnicity on auditor choice for Malaysian listed companies.

Design/methodology/approach

This study evaluates the effects of various independent variables on auditor choice behaviour, particularly ethnicity of auditor and ethnicity of management, using a logistic regression analysis approach for 300 companies listed on the Bursa Malaysia (formerly known as Kuala Lumpur Stock Exchange‐KLSE) over an 18 year period.

Findings

Auditor choice is shown to be significantly influenced by client firm's characteristics, notably changes in management, complexity, and financial risk, lending support to the findings of previous survey studies. Ethnicity was found to be a significant factor influencing auditor choice only for auditor switches between non‐Big 4 and Big 4 firms.

Research limitations/implications

A number of important variables such as corporate governance characteristics, audit fees, client size, and growth that might enhance an understanding of auditor choice behaviour in Malaysia were not incorporated in the regression models, and might be considered in future studies.

Originality/value

The results presented in the paper have important implications for both the auditing profession and regulators in Malaysia.

Citation

Nazatul Faiza Syed Mustapha Nazri, S., Smith, M. and Ismail, Z. (2012), "The impact of ethnicity on auditor choice: Malaysian evidence", Asian Review of Accounting, Vol. 20 No. 3, pp. 198-221. https://doi.org/10.1108/13217341211263265