Capital Market Consequences of Audit Partner Quality

The Accounting Review, Forthcoming

53 Pages Posted: 7 Sep 2013 Last revised: 12 Feb 2015

See all articles by Daniel Aobdia

Daniel Aobdia

Northwestern University - Kellogg School of Management

Chan-Jane Lin

National Taiwan University - College of Management

Reining Petacchi

Georgetown University - Department of Accounting and Business Law

Date Written: February 1, 2015

Abstract

This paper examines whether the identity of the individual audit partners provides informational value to capital market participants beyond the value provided by the identity of the audit firms. Using data from Taiwan, where firms are mandated to disclose the names of the engagement partners, we find a positive association between the partner’s quality and the client firm’s earnings response coefficient. We also find a positive market reaction when a firm replaces a lower quality partner with a higher quality one. Moreover, we find evidence that firms audited by higher quality partners experience smaller Initial Public Offering (IPO) underpricing and are able to obtain better debt contract terms. Overall, these results suggest that the quality of engagement partners matters to capital market participants.

Keywords: individual auditors, audit quality, capital market consequences

Suggested Citation

Aobdia, Daniel and Lin, Chan-Jane and Petacchi, Reining, Capital Market Consequences of Audit Partner Quality (February 1, 2015). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2321333 or http://dx.doi.org/10.2139/ssrn.2321333

Daniel Aobdia

Northwestern University - Kellogg School of Management ( email )

2211 Campus Drive
Evanston, IL 60208
United States

Chan-Jane Lin

National Taiwan University - College of Management ( email )

Department of Accounting
1 Roosevelt Rd. Sec. 4
Taipei 106
Taiwan
886-2-3366-1115 (Phone)
886-2-2363-3640 (Fax)

Reining Petacchi (Contact Author)

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

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