We analyze how investors and information intermediaries perceive auditor tenure. Using earnings response coefficients from returns‐earnings regressions as a proxy for investor perceptions of earnings quality, we document a positive association between investor perceptions of earnings quality and tenure. Further, we find that the influence of reported earnings on stock rankings becomes larger with extended tenure, although the association between debt ratings and reported earnings does not vary with tenure. Finally, we find that the influence of past earnings on one‐year‐ahead earnings forecasts becomes greater as tenure increases. In general, our results are consistent with the hypothesis that investors and information intermediaries perceive auditor tenure as improving audit quality. One implication of our study is that imposing mandatory limits on the duration of the auditor‐client relationship might impose unintended costs on capital market participants.
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1 April 2005
Research Article|
April 01 2005
Auditor Tenure and Perceptions of Audit Quality
Aloke Ghosh;
Aloke Ghosh
aU.S. Securities and Exchange Commission and Baruch College—The City University of New York.
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Doocheol Moon
Doocheol Moon
bState University of New York at Old Westbury.
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2005
The Accounting Review (2005) 80 (2): 585–612.
Citation
Aloke Ghosh, Doocheol Moon; Auditor Tenure and Perceptions of Audit Quality. The Accounting Review 1 April 2005; 80 (2): 585–612. https://doi.org/10.2308/accr.2005.80.2.585
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