Auditor tenure and stock price idiosyncratic volatility : the moderating role of industry specialization

Lixin, Nancy SU, Xuezhou, Rachel ZHAO, Gaoguang, Stephen ZHOU

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

2 Citations (Scopus)

Abstract

In this study, we examine how investors perceive the quality of financial reports audited by auditors with long tenure. We argue that auditor tenure is an important characteristic that influences the effectiveness of audits and thus affects the amount of firm-specific information that is included in stock prices by investors. Based on a sample of U.S. firms from 2003 to 2012, we show that longer tenure is associated with higher stock price idiosyncratic volatility. Further analyses reveal that this effect is only present for industry-specialist auditors, suggesting that the effect of tenure on idiosyncratic volatility is contingent on industry expertise. Our results have a number of implications for the financial markets and the accounting and auditing professions.
Original languageEnglish
Pages (from-to)147-166
Number of pages20
JournalAuditing: A Journal of Practice and Theory
Volume35
Issue number2
DOIs
Publication statusPublished - 1 May 2016
Externally publishedYes

Fingerprint

Idiosyncratic volatility
Tenure
Auditor tenure
Stock prices
Industry specialization
Auditors
Investors
Industry
Expertise
Auditing
Audit
Financial markets

Keywords

  • Auditor industry specialization
  • Auditor tenure
  • Stock price idiosyncratic volatility

Cite this

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title = "Auditor tenure and stock price idiosyncratic volatility : the moderating role of industry specialization",
abstract = "In this study, we examine how investors perceive the quality of financial reports audited by auditors with long tenure. We argue that auditor tenure is an important characteristic that influences the effectiveness of audits and thus affects the amount of firm-specific information that is included in stock prices by investors. Based on a sample of U.S. firms from 2003 to 2012, we show that longer tenure is associated with higher stock price idiosyncratic volatility. Further analyses reveal that this effect is only present for industry-specialist auditors, suggesting that the effect of tenure on idiosyncratic volatility is contingent on industry expertise. Our results have a number of implications for the financial markets and the accounting and auditing professions.",
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Auditor tenure and stock price idiosyncratic volatility : the moderating role of industry specialization. / SU, Lixin, Nancy; ZHAO, Xuezhou, Rachel; ZHOU, Gaoguang, Stephen.

In: Auditing: A Journal of Practice and Theory, Vol. 35, No. 2, 01.05.2016, p. 147-166.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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