Title

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

Document Type

Journal article

Source Publication

Auditing: A Journal of Practice and Theory

Publication Date

5-1-2016

Volume

35

Issue

2

First Page

147

Last Page

166

Publisher

American Accounting Association

Keywords

Auditor industry specialization, Auditor tenure, Stock price idiosyncratic volatility

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.

DOI

10.2308/ajpt-51256

Print ISSN

02780380

E-ISSN

15587991

Publisher Statement

Copyright © 2016 American Accounting Association. All rights reserved.

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Full-text Version

Publisher’s Version

Recommended Citation

Su, L. N., Zhao, X. R., & Zhou, G. S. (2016). Auditor tenure and stock price idiosyncratic volatility: The moderating role of industry specialization. Auditing: A Journal of Practice and Theory, 35(2), 147-166. doi: 10.2308/ajpt-51256