On the Economics of Audit Partner Tenure and Rotation: Evidence from PCAOB Data
Brandon Gipper,
Luzi Hail and
Christian Leuz
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Brandon Gipper: Stanford University
Luzi Hail: University of Pennsylvania
Research Papers from Stanford University, Graduate School of Business
Abstract:
This paper provides the first partner tenure and rotation analysis for a large cross-section of U.S. publicly listed firms over an extended period. We analyze the effects on audit quality as well as economic tradeoffs related to partner tenure and rotation with respect to audit hours and fees. On average, we find no evidence for audit quality declines over the tenure cycle and little support for fresh-look benefits after rotations. Nevertheless, partner rotations have significant economic consequences. We find increases in audit fees and decreases in audit hours over the tenure cycle, which differ by partner experience, client size, and competitiveness of the local audit market. More generally, our findings are consistent with efforts by the audit firms to minimize disruptions and audit failures around mandatory rotations. We also analyze special circumstances, such as audit firm switches and early partner rotations, and show that they are more disruptive than mandatory rotations, and also more likely to exhibit audit quality effects.
JEL-codes: J01 J44 L84 M21 M42 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-acc
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Related works:
Working Paper: On the economics of audit partner tenure and rotation: Evidence from PCAOB data (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:repec:ecl:stabus:3588
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