The PCAOB has recently issued two concept releases that seek feedback on a proposal which requires audit firms to disclose the name of the engagement partner in the audit report. This paper provides evidence about the efficacy of this proposal by examining whether industry audit experts at partner level are valued by stakeholders ─ lenders in the syndicate loan market. Our paper is based on the unique data in Taiwan, where the audit report is issued in the name of two signing auditors, as well as the audit firm. Prior research suggests that lead arrangers prefer to hold a lower share of the loan and to have a larger number of other lenders. First, we find no evidence that Big 4 audit firms are related to the lower share of a syndicated loan held by the lead arrangers, after controlling for industry audit expertise; we also find no evidence that firm-level expertise alone is associated with the share held by lead arrangers. However, we do find that partner-level industry audit experts, either alone or in conjunction with a firm-level industry audit expert, are associated with the lower share of syndicated loans held by lead arrangers. Second, we find that the number of lenders in general (or the number of foreign lenders in particular) in a loan is the largest when borrowers retain industry audit experts at both the firm- and partner-levels.
Accounting Horizons, Online Early Accepted: April 29, 2014