Publicação
Investors' perceptions on mandatory auditor rotation: evidence from Euronext Lisbon
| Resumo: | The global crisis and the accounting scandals highlighted the importance of adopting audit policies with the ability to prevent the breach of auditors’ independence. In this sense, in the United States, the Sarbanes–Oxley Act (SOX, 2002) required mandatory engagement partner rotation. Following the U.S. experience, the European Union through its rules established in 2006 the mandatory rotation of the engagement partner, and in 2014 the mandatory audit firm rotation. Portugal, as a Member State, imposed the mandatory rotation of the engagement partner in November 2008, and the mandatory audit firm’s rotation in January 2016. The benefits arising from the mandatory auditor rotation are still difficult to measure and are not unanimously perceived among policymakers, and prior studies reach conflicting evidence. In this study, we examine the relationship between mandatory auditor rotation (engagement partner and audit firm rotation) and firms’ stock market performance, by using a sample of companies listed in Euronext Lisbon between 2009 and 2020. The main results indicate that the mandatory audit firm rotation is positively and significantly related to firms’ market performance. These results are robust to using year and industry fixed effects, and after controlling for corporate governance mechanisms and other controls. The evidence gathered suggests that investors seem to perceive mandatory rotation of audit firms as enhancing auditors’ independence and skepticism, deriving in higher credibility of financial reporting and in higher audit quality. Regarding the mandatory engagement partner rotation, the results are not statistically significant. |
|---|---|
| Autores principais: | Meira, Pedro Torcato da Cruz |
| Assunto: | Audit firm Auditor’s independence Engagement partner Investors’ perceptions Mandatory auditor rotation Empresa de auditoria Independência dos auditores Perceções dos investidores Rotação obrigatória |
| Ano: | 2022 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade do Minho |
| Idioma: | inglês |
| Origem: | RepositóriUM - Universidade do Minho |
| Resumo: | The global crisis and the accounting scandals highlighted the importance of adopting audit policies with the ability to prevent the breach of auditors’ independence. In this sense, in the United States, the Sarbanes–Oxley Act (SOX, 2002) required mandatory engagement partner rotation. Following the U.S. experience, the European Union through its rules established in 2006 the mandatory rotation of the engagement partner, and in 2014 the mandatory audit firm rotation. Portugal, as a Member State, imposed the mandatory rotation of the engagement partner in November 2008, and the mandatory audit firm’s rotation in January 2016. The benefits arising from the mandatory auditor rotation are still difficult to measure and are not unanimously perceived among policymakers, and prior studies reach conflicting evidence. In this study, we examine the relationship between mandatory auditor rotation (engagement partner and audit firm rotation) and firms’ stock market performance, by using a sample of companies listed in Euronext Lisbon between 2009 and 2020. The main results indicate that the mandatory audit firm rotation is positively and significantly related to firms’ market performance. These results are robust to using year and industry fixed effects, and after controlling for corporate governance mechanisms and other controls. The evidence gathered suggests that investors seem to perceive mandatory rotation of audit firms as enhancing auditors’ independence and skepticism, deriving in higher credibility of financial reporting and in higher audit quality. Regarding the mandatory engagement partner rotation, the results are not statistically significant. |
|---|