Investor reaction to the audit engagement partner disclosure rule

Hyungshin Park

Managerial Auditing Journal, 2021, vol. 36, issue 1, 167-190

Abstract: Purpose - This paper aims to examine whether investors perceive the adoption of Public Company Accounting Oversight Board (PCAOB) Rule 3211, which mandates disclosure of the identity of audit engagement partners for the US-listed companies, as providing net benefits to the companies. Design/methodology/approach - This study identifies 33 events leading up to the adoption of the PCAOB rule and examines the market reaction around these events. Findings - The author finds positive abnormal market-wide returns in response to events that increase the likelihood of adopting the mandate. These positive returns are relatively stronger among companies with higher audit risk and companies with high-quality auditors. Practical implications - The results of this study indicate that market participants expect that the overall benefits from the audit engagement partner disclosure rule outweigh the associated costs for average firms and in particular for firms with high audit risk and high-quality auditors. Originality/value - Prior studies document mixed evidence on the net effects of PCAOB Rule 3211 on audit quality and audit fees, potentially because of the short post-rule adoption period and the weak effect of the rule on audit quality and audit fees during the transition period. The author complements these studies by providing the first evidence on the way that the stock market reacts to events that change the likelihood of the adoption of the audit engagement partner disclosure mandate.

Keywords: Market reaction; Auditor quality; PCAOB; Audit risk; Form AP; Rule 3211 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-11-2020-2893

DOI: 10.1108/MAJ-11-2020-2893

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