We provide the first partner tenure and mandatory rotation analysis for a large cross-section of U.S. publicly listed firms over an extended period. We analyze the effects on audit quality as well as on audit pricing and production. On average, we find no evidence for audit quality declines over the tenure cycle and, consistent with this result, little support for fresh-look benefits after five-year mandatory rotations. Nevertheless, partner rotations have significant economic consequences. Audit fees decline and audit hours increase after mandatory rotations, but then reverse over the tenure cycle. We also find evidence that audit firms use “shadowing” in preparation of lead partner turnover. The economic effects differ predictably by competitiveness of the local audit market, client size, and partner experience. When multiple members of the audit team start together at a new client, the transition appears to be more disruptive (but still less so than switching the audit firm) and more likely to exhibit audit quality effects, such as fresh look. Overall, our findings are consistent with costly efforts by the audit firms to minimize both disruptions and audit failures around mandatory rotations.
