On the Economics of Audit Partner Tenure and Rotation: Evidence from PCAOB Data / Brandon Gipper, Luzi Hail, Christian Leuz.

Format:

Book

Author/Creator:

Gipper, Brandon.

Contributor:

National Bureau of Economic Research.

Hail, Luzi.

Leuz, Christian.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24018.

NBER working paper series no. w24018

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

On the Economics of Audit Partner Tenure and Rotation

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

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.

Notes:

Print version record

November 2017.