Investor Reaction to the Audit Engagement Partner Disclosure Rule
Park, H. (2021), "Investor reaction to the audit engagement partner disclosure rule", Managerial Auditing Journal, Vol. 36 No. 1, pp. 167-190. https://doi.org/10.1108/MAJ-11-2020-2893
38 Pages Posted: 10 Jun 2021
Date Written: March 26, 2021
This study aims to examine whether investors perceive the adoption of Public Company Accounting Oversight Board (PCAOB) Rule 3211, which mandates disclosure of the identity of audit engagement partners for the US-listed companies, as providing net benefits to the companies. We identify 33 events leading up to the adoption of the PCAOB rule and examines the market reaction around these events and find positive abnormal market-wide returns in response to events that increase the likelihood of adopting the mandate. These positive returns are relatively stronger among companies with higher audit risk and companies with high-quality auditors. Our results indicate that market participants expect that the overall benefits from the audit engagement partner disclosure rule outweigh the associated costs for average firms and in particular for firms with high audit risk and high-quality auditors.
Keywords: Market reaction, Auditor quality, PCAOB, Audit risk, Form AP, Rule 3211
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