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http://ssrn.com/abstract=1594951
 
 

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Does Mandatory Audit Firm Rotation Improve or Impair Corporate Investment Efficiency?


Tong Lu


University of Houston

Shiva Sivaramakrishnan


Texas A&M University - Department of Accounting

April 20, 2010


Abstract:     
We develop a framework with which to analyze the interactions among auditor attestation strategy, corporate investment decision, and capital market valuation. We use this framework to examine mandatory audit firm rotation (Section 207 of the Sarbanes-Oxley Act) and identify its three potential effects: the real (cash flow) effect; the attestation effect; the price effect. In particular, we show that mandatory audit firm rotation impairs corporate investment efficiency for firms with rosy prospects but improves corporate investment efficiency for firms with gloomy prospects.

Number of Pages in PDF File: 44

Keywords: Information Role of Auditing, Insurance Role of Auditing, Auditor Conservatism, Auditor Independence

JEL Classification: M42, M48

working papers series





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Date posted: April 26, 2010  

Suggested Citation

Lu, Tong and Sivaramakrishnan, Shiva, Does Mandatory Audit Firm Rotation Improve or Impair Corporate Investment Efficiency? (April 20, 2010). Available at SSRN: http://ssrn.com/abstract=1594951 or http://dx.doi.org/10.2139/ssrn.1594951

Contact Information

Tong Lu (Contact Author)
University of Houston ( email )
Houston, TX 77204
United States
Shiva Sivaramakrishnan
Texas A&M University (TAMU) - Department of Accounting ( email )
430 Wehner
College Station, TX 77843-4353
United States

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