On the Economics of Audit Partner Tenure and Rotation: Evidence from PCAOB Data

Brandon Gipper, Luzi Hail and Christian Leuz

No 24018, NBER Working Papers from National Bureau of Economic Research, Inc

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: G30 J44 J62 K22 L84 M21 M41 M42 M51 M54 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-acc, nep-law and nep-lma
Note: CF IO LE
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Published as Brandon Gipper & Luzi Hail & Christian Leuz, 2020. "On the Economics of Mandatory Audit Partner Rotation and Tenure: Evidence from PCAOB Data," The Accounting Review, , pages 0000-0000.

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Working Paper: On the Economics of Audit Partner Tenure and Rotation: Evidence from PCAOB Data (2017)
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