Does audit firm tenure enhance firm value? Closing the expectation gap through corporate social responsibility

Purpose This study aims to examine the moderating effect of audit firm tenure on association between corporate social responsibility (CSR) and value. Prior studies provide mixed results this association, which may be due differing theoretical expectations related CSR It is also possible that external stakeholders are unable differentiate positive negative investments, as reports generally not assured by independent third parties. Thus, authors propose used evaluate performance. Design/methodology/approach The use an ordinary least squares regression relation value after controlling for other determinants various internal governance mechanisms documented in literature. sample consists 15,707 firm-year observations from US firms during period 2000 2012. measure quality using rating scores MSCI ESG STATS (formerly KLD database), number years incumbent auditor has served client Tobin’s Q. Findings indicate positively associated with when long but short. robust alternative measures value, performance scores, individual dimensions. evidence supports argument against mandatory rotation USA. Research limitations/implications Future could a similar issue settings and/or look at cross-sectional variations among traits such industry specialization big-name reputation. Additionally, alone ensure management disclosures their accountability, future exploring signaling reporting its most salient. Practical implications findings important regulators investors. longer serves device investors regard firm’s Hence, facilitates regulators’ cost-benefit analysis mandating rotation. suggests term limit have unintended consequence eliminating under information asymmetry. Public Company Oversight Board’s decision forgo requirement Originality/value literature presents based variety underlying theories (economic, stakeholder contingency theory). Literature concentrated perceived actual reflected earnings quality. Relying agency theory, posits signal activities absence assurance can difficult evaluate. moderates makes it more likely increased