We investigate how increased auditor competition and changes in corporate objectives and potential management agency costs affects auditor switching. To do so, we exploit a natural experiment generated by recent policy and regulatory changes in Iran. The three main elements are: (1) the incremental privatization of government corporations, which we argue increases demand for private sector auditors; (2) removal of the government auditor monopoly over the audit of government controlled listed companies, which increased the ability of management to switch auditors; and (3) changes in the licensing of auditors, which resulted in a significant increase in the number of private sector audit firms competing for clients. We argue that the privatization policy and the rapid increase in competition in the audit, managerial labor and capital markets increased agency costs and signaling incentives for listed companies, which we link to incentives for auditor switching. We find that increased competition, auditor-client alignment, changes in CEO, earnings management, and qualified audit opinions due to auditormanagement conflicts are significantly associated with auditor switching. The results support the general proposition that increased competition in the audit market increases auditor switching. Because prior research is focused on decreasing competition in the audit market, our study makes a valuable contribution in this regard. We do not find a signification relation between either privatization or ownership concentration and auditor switching. The continuing high levels of government ownership and control in Iranian companies may have influenced this result.

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