Do Investors Care Who Did the Audit? Early Evidence on the Informativeness of Form AP

51 Pages Posted: 14 Aug 2018 Last revised: 23 Jul 2019

See all articles by Marcus Doxey

Marcus Doxey

University of Alabama - Culverhouse School of Accountancy

James Lawson

University of Alabama - Culverhouse School of Accountancy

Thomas J. Lopez

University of Alabama - Culverhouse School of Accountancy

Quinn Thomas Swanquist

University of Alabama - Culverhouse School of Accountancy

Date Written: July 2019

Abstract

In 2017, the PCAOB mandated the disclosure of audit participants, including lead audit partners and other outside auditors, for all U.S. public company audits. We examine whether these disclosures contain useful information for investors, measured by trading volume. Our initial tests show no evidence of an investor response following the disclosure of partner identity or other auditor participation. We extend our investigation to examine cross sections where Form AP is likely to be most informative. Specifically, we examine partner changes, partners associated with restatements, high levels of outside participation, participation from auditors with PCAOB inspection deficiencies, and participation from auditors outside PCAOB inspection jurisdiction. With the lone exception of partners with prior restatements, we find no significant investor response in these cross sections. In cases where the auditor is associated with a prior restatement, we find evidence of a significant trading increase around Form AP. Taken together, we provide evidence that specifically disclosing partners associated with audit failures appears informative to investors, consistent with the assertions of the PCAOB, though the preponderance of evidence suggests other partner and audit participant disclosures have not significantly impacted capital markets.

Keywords: Audit Partners, Capital Markets, Form AP

JEL Classification: M40, M42, M48

Suggested Citation

Doxey, Marcus M and Lawson, James and Lopez, Thomas J. and Swanquist, Quinn Thomas, Do Investors Care Who Did the Audit? Early Evidence on the Informativeness of Form AP (July 2019). Available at SSRN: https://ssrn.com/abstract=3221383 or http://dx.doi.org/10.2139/ssrn.3221383

Marcus M Doxey (Contact Author)

University of Alabama - Culverhouse School of Accountancy ( email )

Tuscaloosa, AL 35487
United States

James Lawson

University of Alabama - Culverhouse School of Accountancy ( email )

Tuscaloosa, AL 35487
United States

Thomas J. Lopez

University of Alabama - Culverhouse School of Accountancy ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States
205-348-2907 (Phone)

Quinn Thomas Swanquist

University of Alabama - Culverhouse School of Accountancy ( email )

Tuscaloosa, AL 35487
United States

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