This study examines whether companies with financial statements that contain higher degrees of information uncertainty are more inclined to hire specialist auditing firms. We argue that they do so to signal the credibility of the financial statements and improve stakeholders’ perceptions. We develop comprehensive measures of information uncertainty from the auditor’s viewpoint and deconstruct it into fundamental volatility uncertainty and reporting quality uncertainty. We sample U.S. companies that switched auditors from 2001 to 2009 to examine whether information uncertainty influenced their auditor selection. Confirming our conjecture, companies confronting higher information uncertainty prefer to hire specialist auditors. Evidence partially supports that companies confronting higher reporting quality uncertainty are more inclined to hire specialist auditors when compared with those confronting fundamental volatility uncertainty.
Review of Integrative Business and Economics Research 5(4), pp.329-370