When and How is Audit Partner Identity Informative? Evidence from Analyst Forecast Revisions and Audit Partner Quality

This paper investigates when and how audit partner identity is informative to market participants by examining the association between analyst forecast revisions in response to earnings surprises and audit partner quality (APQ) and factors that influence this association. Using a sample of Australian listed clients and measuring APQ through their personal fixed effects on client abnormal accruals, we find that a positive association between APQ and analyst responses to earnings surprises emerges when partners have established a track record of auditing listed clients for at least three years and that experienced analysts incorporate APQ into their forecasts on a more timely basis. Results also suggest that clients of high-quality audit partners make non-GAAP earnings adjustments that are less predictive of future cash flow, indicating a potential channel through which APQ influences analyst forecast revisions. Overall, our findings provide insights into the effectiveness of the requirement of disclosing audit partner identity.