Does the Requirement of an Engagement Partner Signature Improve Financial Analysts’ Information Environment In the United Kingdom?

Document Type

Article

Publication Date

7-1-2017

School

Accountancy

Abstract

© 2016, Springer Science+Business Media New York. 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.

Publication Title

Review of Quantitative Finance and Accounting

Volume

49

Issue

1

First Page

263

Last Page

281

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