臺大管理論叢 NTU Management Review VOL.30 NO.2

215 NTU Management Review Vol. 30 No. 2 Aug. 2020 realignment. By categorizing the realignment reasons into client-related, CPA firm-related, and government-related groups, the evidence obtained from our analyses illustrates that firms citing client-related reasons to realign with auditors enjoy significant audit fee reductions after the enactment of the government initiative. In contrast, firms citing CPA firm-related as the reason to realign with auditors experience a significant decline in audit quality after the government initiative promulgated in May 2007. The remainder of this paper is organized as follows. Section 2 reviews the extant literature on auditor-client realignment. Based on what have been documented in these studies, we develop three research questions. Section 3 outlines the data collection processes, discusses the research methodology, and presents three regression models. Section 4 shows the empirical results. Section 5 demonstrates the results of a robustness test that validate the main findings reported in this study. Finally, Section 6 summarizes the study, provides further discussions regarding the policy implications from our research findings to regulatory agencies, professional organizations, and accounting firms; and then points out our research limitations at the end. 2. Literature Review and Research Questions 2.1 Auditor-Client Realignment Decisions The auditing literature documents issues relating to auditor-client realignment decisions can be considered from several perspectives. From the view of the capital market, auditor-client realignment decisions may influence market perceptions of earnings quality and affect market reactions to earnings announcements. For instance, Hackenbrack and Hogan (2002) report that auditor-client realignments impact market responses, as measured by the Earnings Response Coefficients (ERCs) in the years surrounding these decisions. Hackenbrack and Hogan (2002) also note that ERCs are lower when auditors and clients decide to realign with one another. In addition, their study shows that market participants could use the auditor-client realignment decision as a source of information to supplement the content of earnings announcements. Specifically, disclosing fee-related issues as the reasons to realign with auditors sends a negative signal to capital markets regarding the quality of the reported earnings. Moreover, Aldhizer, Martin, and Cotter (2009) explore whether the disclosure of an auditor-client realignment decision conveys information to market participants. If it does, would such a disclosure influence stock returns? Measuring stock returns according to the amount of cumulative abnormal returns (CARs), these authors demonstrate that auditor-client realignment decisions indeed