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

• In Event: Audit Partner Quality

Abstract

In 2017, the PCAOB mandated the disclosure of lead audit partners and other audit participants for U.S. public companies. We investigate whether these disclosures are informative to investors. Our initial tests show no evidence of an incremental market response, measured using abnormal trading volume and number of trades, around the disclosure of partner identity or other auditor participation. We extend our investigation to examine investor responses to partner changes, high levels of outside participation, and participation from auditors outside PCAOB jurisdictions. Even in these subsamples, we find no significant market response. Further, the precision of our estimates indicates that these disclosures had no meaningful economic effect on investor trading behavior. Our findings are robust to alternative specifications and to measuring informativeness using bid-ask spreads. Overall, the evidence suggests that the initial partner and other audit participant disclosures have not significantly impacted capital markets.

Authors

• Marcus M. Doxey, University of Alabama-Tuscaloosa

• James Gregory Lawson, University of Alabama-Tuscaloosa

• Thomas James Lopez, University of Alabama-Tuscaloosa

• Quinn Thomas Swanquist, University of Alabama