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Auditor Partner Tenure and Cost of Equity Capital

Azizkhani, Masoud; Shailer, Gregory; Monroe, Gary

Description

We examine whether audit engagement partner tenure and rotation affect investors' perceptions, as proxied by the ex ante cost of equity capital. We find that partner tenure has a nonlinear relation with the ex ante cost of equity capital for non-Big 4 audit engagements prior to the introduction of partner rotation requirements, and that the imputed gains from partner tenure appear similar to the imputed gains of having a Big 4 auditor. Consistent with the tenure results, we also find that...[Show more]

dc.contributor.authorAzizkhani, Masoud
dc.contributor.authorShailer, Gregory
dc.contributor.authorMonroe, Gary
dc.date.accessioned2015-12-08T22:37:39Z
dc.identifier.issn0278-0380
dc.identifier.urihttp://hdl.handle.net/1885/35614
dc.description.abstractWe examine whether audit engagement partner tenure and rotation affect investors' perceptions, as proxied by the ex ante cost of equity capital. We find that partner tenure has a nonlinear relation with the ex ante cost of equity capital for non-Big 4 audit engagements prior to the introduction of partner rotation requirements, and that the imputed gains from partner tenure appear similar to the imputed gains of having a Big 4 auditor. Consistent with the tenure results, we also find that partner rotation is associated with increased ex ante cost of equity capital. Our results are very robust to a variety of sensitivity tests and raise important questions for future research. It is not known to what extent investors or analysts are aware of the audit partner's identity or pay attention to audit partner tenure; if investors or analysts do not consider partner tenure, future research may identify omitted variables that have the same nonlinear relationship with the ex ante cost of capital that we observe for non-Big 4 audit partner tenure.
dc.publisherAmerican Accounting Association
dc.sourceAuditing: A Journal of Practice and Theory
dc.subjectKeywords: Audit partner rotation; Audit partner tenure; Cost of capital; Financial reporting credibility
dc.titleAuditor Partner Tenure and Cost of Equity Capital
dc.typeJournal article
local.description.notesImported from ARIES
local.identifier.citationvolume32
dc.date.issued2013
local.identifier.absfor150102 - Auditing and Accountability
local.identifier.ariespublicationu4602557xPUB126
local.type.statusPublished Version
local.contributor.affiliationAzizkhani, Masoud, College of Business and Economics, ANU
local.contributor.affiliationShailer, Gregory, College of Business and Economics, ANU
local.contributor.affiliationMonroe, Gary, University of New South Wales
local.description.embargo2037-12-31
local.bibliographicCitation.issue1
local.bibliographicCitation.startpage183
local.bibliographicCitation.lastpage202
local.identifier.doi10.2308/ajpt-50308
local.identifier.absseo900202 - Professional, Scientific and Technical Services
dc.date.updated2016-02-24T11:12:45Z
local.identifier.scopusID2-s2.0-84873668425
local.identifier.thomsonID000314734400007
CollectionsANU Research Publications

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