Does the requirement of an engagement partner signature improve financial analysts’ information environment in the United Kingdom?

Does the requirement of an engagement partner signature improve financial analysts’ information... I investigate the effect of requiring the audit engagement partner (EP) to sign the audit report on financial analysts’ information environment in the United Kingdom (U.K.). To control for the effect of confounding concurrent events, I use a control sample of firms listed in France, Germany, and the Netherlands that had already implemented the EP signature requirement at least 2 years prior to the adoption date in the U.K. I find that, relative to this control sample, U.K. firms experienced a significant increase in analyst following and a significant decrease in analysts’ absolute forecast errors and forecast dispersion from a 2-year pre- to 2-year post-signature period. The results are robust to a battery of sensitivity tests such as varying both pre- and post-signature windows and using different measurements of outcome variables. In general, my findings indicate that adopting the EP signature requirement leads to the improvement in analysts’ information environment in the U.K., and this improvement is partially influenced by an improvement in audit quality. These results provide timely ex-ante empirical evidence to the ongoing debate over whether passing a similar requirement in the U.S., proposed by the Public Company Accounting Oversight Board, benefits investors and other financial statement users. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Does the requirement of an engagement partner signature improve financial analysts’ information environment in the United Kingdom?

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Publisher
Springer US
Copyright
Copyright © 2016 by Springer Science+Business Media New York
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-016-0590-0
Publisher site
See Article on Publisher Site

Abstract

I investigate the effect of requiring the audit engagement partner (EP) to sign the audit report on financial analysts’ information environment in the United Kingdom (U.K.). To control for the effect of confounding concurrent events, I use a control sample of firms listed in France, Germany, and the Netherlands that had already implemented the EP signature requirement at least 2 years prior to the adoption date in the U.K. I find that, relative to this control sample, U.K. firms experienced a significant increase in analyst following and a significant decrease in analysts’ absolute forecast errors and forecast dispersion from a 2-year pre- to 2-year post-signature period. The results are robust to a battery of sensitivity tests such as varying both pre- and post-signature windows and using different measurements of outcome variables. In general, my findings indicate that adopting the EP signature requirement leads to the improvement in analysts’ information environment in the U.K., and this improvement is partially influenced by an improvement in audit quality. These results provide timely ex-ante empirical evidence to the ongoing debate over whether passing a similar requirement in the U.S., proposed by the Public Company Accounting Oversight Board, benefits investors and other financial statement users.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Aug 8, 2016

References

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