We investigate how auditor switching is affected by government influence, misalignment between type of auditor (government vs. private) and type of controlling shareholder(government vs. private), and between auditor and imputed preferences of managersin a market characterized by continued substantial government ownership in listed entities.We exploit a natural policy and regulatory experiment in Iran that allows us to investigate what happens when previously government-owned entities are partially privatized as listed entities where, in many cases, the government retains significant ownership interests. At the same time, there were significant changesin the audit market, resulting in large increases in the number of private sector auditors competing for previously state-administered audits.We find the likelihood of auditor switches is strongly associated with measures of misalignment between type of auditor and type of controlling shareholder and auditor-managerial misalignment, but these associations are constrained by significant government influence.Exposing the constraining effect of significant government influence on auditor switching is an important contribution to our understanding of privatizations, government shareholder influence and auditor choice. These results have implications for policy development in other emerging and transition economies where privatization remains largely partial, and competition among private sector auditorsis still emergent.

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