How do investors react when they know the identity of an audit partner?

What is it about?

Recently, the PCAOB passed a rule stating that audit partners must disclose their identities on all publicly traded audits. We investigate how investors use this information. In particular, we look at a situation in which two companies (A & B) are audited by the same firm and partner. If Company A experiences a restatement, we find that investors who know that the same partner audited Company B will react more negatively towards Company B compared to investors who only know Company B was audited by the same audit firm.

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Why is it important?

We document a potential negative consequence of disclosing audit partner identities. In particular, that investors may use the disclosure as a signal for audit quality.