This study finds that mandatory rotation of engagement partners results in more positive earnings response coefficient (ERC) in the years immediately following rotation than in the years that are not. Further analysis reveals that the positive association is driven by firms that announce bad earnings news and for bonds with longer maturity terms. Furthermore, such positive association is stronger when the incoming engagement partner has more industry expertise than the leaving partner, when the audit firm is a non–Big 6 auditor, and when the client firm is small. Finally, the relationship does not exist for voluntary partner rotation.
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Xiao et al. (2024) studied this question.
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