This study examines the relationship between audit firm tenure and firm performance using a comprehensive panel dataset of listed companies in Borsa İstanbul. Utilizing 1,582 firm-year observations from 113 companies over the period 2010-2023, the relationship between rotation tenure and return on assets (ROA), return on equity (ROE), and Tobin's Q is analyzed through three distinct econometric specifications: linear, quadratic, and threshold models. The empirical estimations control for industry and year fixed effects, and dynamic GMM models are employed to address potential endogeneity concerns. The findings reveal a non-linear, threshold-dependent relationship between audit firm tenure and firm performance. The results indicate that very short rotation periods negatively impact performance due to initial adaptation frictions, while excessively long rotation periods neutralize learning benefits due to the emergence of familiarity threats. Firms maintaining medium-to-long-term audit engagements exhibit superior accounting-based performance. The results provide strong empirical support for both learning effect theory and independence impairment theory, suggesting that optimal audit firm tenure balances the benefits of auditor learning with the preservation of independence. Given that the current 7-years mandatory rotation period in Türkiye exceeds the optimal performance window identified in this study, the findings suggest a need to reevaluate regulatory policies. Moderating the maximum tenure limit could enhance audit quality and positively contribute to firm performance.
Abdullah Kürşat Merter (Tue,) studied this question.