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
Date Written: July 2019
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: Suggested Citation