CAPIC REVIEW

Journal of Accounting, Auditing and Business Management

ISSN 0718-4662

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Vol. 23 (2025): CAPIC REVIEW
Investigation

The impact of external auditor selection on firms’ financial performance

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  • Paz Belén Leyton Navarro,
  • Javier Antonio Pezoa Caamano,
  • Felipe Arenas Torres
Paz Belén Leyton Navarro
Facultad de Economía y Negocios, Universidad de Talca
Javier Antonio Pezoa Caamano
Facultad de Economía y Negocios, Universidad de Talca
Felipe Arenas Torres
Universidad de Talca
Bio
DOI: https://doi.org/10.35928/cr.vol23.2025.255
Categories

Published 2026-01-09

Keywords

  • External auditing,
  • Financial performance,
  • Auditor selection,
  • Big Four

How to Cite

Leyton Navarro, P. B., Pezoa Caamano, J. A., & Arenas Torres, F. (2026). The impact of external auditor selection on firms’ financial performance. CAPIC REVIEW, 23. https://doi.org/10.35928/cr.vol23.2025.255

Copyright (c) 2025 Paz Belén Leyton Navarro, Javier Antonio Pezoa Caamano, Felipe Arenas Torres

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Abstract

From an agency theory perspective, the selection of the external auditor reduce information asymmetries between owners and managers. Similarly, from a signalling theory perspective, factors such as professional competence, independence, ethics and service costs may act as signals to the market. However, there is limited empirical evidence on these factors in the Latin American context. Accordingly, this study aims to determine the extent to which factors considered in the selection of external auditors are associated with firms' financial performance. To this end, we analysed the most liquid firms in Chile, Argentina and Colombia between 2020 and 2024, using return on assets (ROA), return on equity (ROE) and Tobin's Q as dependent variables. The research adopted a quantitative approach with a non-experimental longitudinal design and explanatory scope (in an analytical-statistical non-causal sense). Shareholders' meeting minutes were analysed to identify auditor selection criteria, together with financial data extracted from financial statements. Descriptive statistics, a preliminary diagnostic correlation analysis, and panel-data regression models were applied to evaluate the relationship between the reported auditor selection factors and firms’ financial performance. The results demonstrate heterogeneous effects depending on the financial performance measure analysed. In the regression models, the factor 'Professional Competence' exhibits a positive and statistically significant association with ROA and ROE, whereas 'Independence and Ethics' exhibits a positive and significant association with market performance (Tobin's Q). Due to the non-experimental nature of the study, these findings are considered to be empirical associations rather than evidence of causality.

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