Journal of Modern Accounting and Auditing, ISSN 1548-6583 May 2014, Vol. 10, No. 5, 528-536 Audit Partner Rotation, Audit Quality, and Dynamic Industry Structure ∗ Lan Jyh-shyan Providence University, Taichung City, Taiwan Previous research on the relationship between audit partner tenure and audit quality assumed that auditors conducted auditing works in a stable external environment where the corporate and management behavior was highly predictable. This study uses the joint tenure between audit partners and management to explain audit quality, because corporate directors would consider an appropriate adjustment in the management to deal with a dramatic change in the external environment. First, we examined whether there is a significant association between audit partner tenure and audit quality after the implementation of mandatory audit partner rotation by using the auditor tenure only. We addressed this issue by using a sample of Taiwanese companies and found no significant association between audit partner tenure and the magnitude of discretionary accruals (DA), a common proxy for audit quality. Second, we tested the relationship between audit partner tenure and audit quality under the consideration of industry structure stability. The result exhibits a negative relation between audit partner tenure and audit quality under the control of industry structural stability which is measured by a proxy variable, the joint tenure between audit partner and management. Third, we investigated whether the association does exist between joint tenure of auditors and management and audit quality. We also addressed this issue by using Taiwanese data and found a significant association between the joint tenure of auditor and management and the magnitude of DA. Our findings provide evidence that the use of a mandatory rotation rule is an ineffective way to improve audit quality. Keywords: auditor partner tenure, audit quality, familiarity, financial statements, management tenure Introduction According to previous literature, the relationship between auditor tenure and financial statement quality could be explained by two competing hypotheses, the auditor independence hypothesis and the auditor expertise hypothesis. The auditor independence hypothesis argues that setting a limit on the number of years that an auditor may audit the same company will improve auditor independence and financial statement quality (Johnson, Khurana, & Reynolds, 2002; J. N. Myers, L. A. Myers, Palmrose, & Scholz, 2005; Chen, C. Lin, & Y. Lin, 2008). While the auditor expertise hypothesis argues that as auditors gain more experience from longer tenure, they have better knowledge to determine whether the clients’ accounting and reporting choices are proper (Shockley, 1981; Sinason, Jones, & Shelton, 2001; Carcello & Nagy, 2004; Beck & Wu, 2006; Chen et al., 2008). ∗ Acknowledgement: I thank Dr. Tsai Hsueh-chang, Dr. Cheng Li, and Dr. Wang Ya-fang for providing helpful comments. Lan Jyh-shyan, assistant professor, Department of Accounting, Providence University. Email: jslan@pu.edu.tw. DAVID PUBLISHING D AUDIT PARTNER ROTATION, AUDIT QUALITY, AND DYNAMIC INDUSTRY STRUCTURE 529 However, the previous research on the relationship between audit quality and audit partner tenure did not consider the dynamic forces of innovation and entrepreneurship that might reform the industry structure. Some industries are subject to rapid and intense competitive move, thus, competitors must generate new competitive advantages and destroy or neutralize the opponents’ competitive advantages. In such an environment, firms may change the management that is incapable of handling this competitive interaction among firms. Since there is little or no knowledge about the successive management team, there may be a lot of uncertainties during the auditing procedure even if there is no change in auditor tenure. From this viewpoint, the change of management would increase the audit risk according to the auditor expertise hypothesis. However, a change in management may weaken the personal relationship between the auditor and management, even if there is no change in the auditor tenure. From this viewpoint, the change of management would increase auditor independence according to the auditor independence hypothesis. Whether there is a need to consider management tenure in exploring the relationship between auditor tenure and audit quality is dependent on the speed of structural change in the industry. If structural transformation is slow, a switch of management will be less likely. The previous model, considering the use of auditor tenure to explain audit quality, may still have enough explanatory power. However, if the structural transformation is rapid, a model with a simultaneous consideration of both auditor and management tenure will be more appropriate. So, this paper proposes the use of joint tenure between auditors and management to explain the audit quality. The provision made on auditor tenure for Taiwanese companies is that an auditor rotation occurs every five years under the 2003 rule and every seven years under the 2009 rule. Previous papers evaluate the effectiveness of these mandatory auditor rotation rules by models merely considering the use of auditor tenure to test the improvement of the audit quality after the implementation of the mandatory auditor rotation rule. This paper hopes to answer the same question, “Does financial statement quality improve after the implementation of mandatory auditor rotation?”, by a joint consideration of auditor and management tenure. This paper investigates this issue by using a sample of Taiwanese companies. The regulations in Taiwan require that the audit reports for public companies be certified by two auditors from the same audit firm and that the auditors’ names be disclosed in the audit reports. This requirement enables us to determine auditors’ tenure. The result of this study only shows a negative relationship between the joint tenure and audit quality after the control of the industry structural stability which is measured by a proxy variable, the joint tenure between audit partners and management. This result shows that the use of the mandatory rotation rule to improve audit quality is ineffective. The rest of this paper is organized as follows: The next section reviews related studies and develops the hypotheses. Section 3 describes the research design and sample selection. Section 4 discusses the empirical results, and conclusions are made in Section 5. Related Studies and Hypotheses Development Mandatory Audit Partner Rotation and Financial Statement Quality Mandatory audit partner rotation has been adopted in many countries as a means to improve financial statement quality due to auditor independence. In the United States, the American Institute of Certified Public Accountants (AICPA) has mandated a 7-year rotation since the 1970s, and Sarbanes-Oxley Act (SOX) Section 203 has required audit partner rotation every five years since 2003. Furthermore, mandatory partner AUDIT PARTNER ROTATION, AUDIT QUALITY, AND DYNAMIC INDUSTRY STRUCTURE 530 rotation is enacted in Australia, France, Germany, Japan, the Netherlands, Singapore, Spain, and the United Kingdom. On one hand, the proponents of mandatory auditor rotation argue that it might enhance auditor independence due to a “fresh look” by the new partners. On the other hand, the opponents argue that it might increase the likelihood of audit failures due to new partners’ lack of client-specific knowledge of risks, operations, and financial reporting practices in the initial years (AICPA, 1992a; 1992b). The adoption of compulsory partner rotation implies the regulators’ belief that the benefits of mandatory rotation outweigh the costs of such a policy. However, the validity of such a belief has not been extensively tested in previous studies. Some studies focusing on Australia firms such as Monroe and Hossain (2013) found an insignificant association between tenure of audit partners and the likelihood of issuing a going-concern opinion for a sample of financially distressed companies after the implementation of the mandatory audit partner rotation rule. Some studies focusing on Taiwanese data such as Chi, Huang, Liao, and Xie (2009) found an insignificant association between tenure of audit partner and discretionary accruals (DA) after the implementation of a mandatory partner rotation policy. To explore the effectiveness of mandatory partner rotation, this paper develops the first hypothesis: H1: There is a positive association between audit partner tenure and audit quality after the implementation of audit partner rotation. Dynamic External Environment and Audit Quality The notion that an external environment is relatively stable assumes corporate behavior in a predictable way and ignores the dynamic forces of innovation and entrepreneurship. Competition is viewed as the source of creative destruction through which a favorable external environment contains the seeds of its own destruction by attracting incursions from new and established firms deploying groundbreaking strategies and cutting-edge products to unseat incumbents. If the transformation of an external environment is rapid, the firms need to search new management who are more capable of handling the challenges in the new external environment (Schumpeter, 1934). From the viewpoint of the independence hypothesis, a change in management might increase auditor independence based on two reasons: (1) It will be unlikely for new management to become members of the board of directors in a short period of time. Without the severe duality problem, the board of directors is more likely to appoint an auditing team based on the auditor’s quality (Bliss, 2011; Kamarudin, Ismail, & Samsuddin, 2012; Cohen, Gaynor, Krishnamoorthy, & Wright, 2011). In this situation, the decrease of management tenure due to a switch of management will increase the auditor independence even if there is no change in the auditor tenure; and (2) Similarly, new management might not have enough time to build a personal relationship with their auditors. In this situation, auditors are more likely to act as impartial judges, even if there is no change in the auditor tenure. From the viewpoint of expertise hypothesis, a change of management may increase the possibility of audit failures due to audit partners’ lack of specific knowledge related to new management. In this situation, a change of management team will decrease audit quality due to the increase of audit risks, despite that there is no change in the auditor tenure. In summation, there is substantial evidence that modifying management will likely affect audit quality, regardless of whether there is adjustment of auditor tenure or not. Therefore, a joint consideration of both audit partner and management tenure will be more appropriate to explain audit quality. So, to explore the effectiveness of the new auditor rotation provision, this study formulates the next hypotheses as follows: AUDIT PARTNER ROTATION, AUDIT QUALITY, AND DYNAMIC INDUSTRY STRUCTURE 531 H2: There is a positive association between the tenure of audit partner and audit quality with the consideration of joint tenure between audit partners and management after the implementation of audit partner rotation. H3: There is a positive association among the joint tenure of management, audit partner, and audit quality after the implementation of audit partner rotation. Research Design Measurement of Financial Statement Quality When earnings quality is poor, the financial statements are more likely to contain items that obscure the company’s true operating results and financial positions. Large accruals are found to be associated with poor earnings quality, because any measurement errors in accruals that are not realized in cash flows would lower the quality of earnings. Therefore, like many studies in literature, this paper uses DA as the proxy of audit quality (Chen et al., 2008). The modified Jones Model is applied to estimate DA as follows: ,,0,11,,,12, [(1/ ) (( )/ ) ] it it it it it it it DA TACC TA Rev AR TA PPE β ββ −− =− +Δ−Δ + (1) where DA i,t is discretionary accruals; TACC i,t is total accruals (earnings before extraordinary items minus net cash flow from operations); ∆Rev i,t is change in net sales; ∆AR i,t is change in net accounts receivable; PPE i,t is net property, plant, and equipment; TA i,t and (∆Rev i,t − ∆AR i,t ) are scaled by lagged total assets, TA i,t-1 . The coefficients, β 0 , β 1 , and β 2 , are the parameters from estimating the following model by Dechow, Sloan, and Sweeney (1995): ,0 ,11 , , ,12 ,, (1 / ) (( ) / ) it it it it it it it TACC TA Rev AR TA PPE β ββε −− =+Δ−Δ ++ (2) Measurement of Audit Partner Tenure and Joint Tenure of Audit Partner and Management Most previous research on the effect of audit partner tenure on audit quality used data from either Australia or Taiwan, because most jurisdictions do not require a disclosure of the audit partners. According to Taiwan regulation, the audit reports of public companies in Taiwan must be certified by both lead and concurring partners, and it must disclose the names of both partners. In 2003, after the passage of the SOX in the United States, Taiwan regulators mandated a partner rotation statute, which stated that if the lead or concurring partner has performed audit services for a listed company for the past five years, then the company’s financial statements are subject to the stock exchange’s “substantive review” procedure. In 2009, Taiwan regulators overhauled this rule by a 7-year audit partner rotation requirement specified in the Auditing Standard Bulletin No. 46. In this paper, the tenure of the lead audit partner is denoted as AT1 and the tenure of the concurring partner auditor is denoted as AT2. As to the management, this paper considers tenures of both chief executive officer (CEO) and chief financial officer (CFO), because they are the personnel whose position is subject to the influence of industry structure change and are the most relevant to the preparation of financial statements. Three steps are used to calculate the joint tenure of audit partner and management. First, the longest of AT1 and AT2 is used to represent the tenure of the audit partner. Second, the joint tenure of the audit partner and CEO is calculated and denoted as JT1. Third, the joint tenure of the audit partner and CFO is calculated and denoted as JT2. AUDIT PARTNER ROTATION, AUDIT QUALITY, AND DYNAMIC INDUSTRY STRUCTURE 532 Measurement of Control Variables Firm size, total accruals amount, and operational cash flow (OCF) are the three control variables in this study. Becker, DeFond, Jiambalvo, and Subramanyam (1998) found that firm size can be used as a proxy of omitted variables. This study uses the natural log of the firm’s total asset as the firm size. Becker et al. (1998) also found a positive relationship between the absolute value of total accruals and the magnitude of DA, because it would be easier to manipulate earnings if the number of total accruals is larger. Following the model set by Krishnan (2003), this paper uses an absolute value of total accruals scaled by a lagged total asset. Dechow et al. (1995) pointed out that the higher the OCF, the lower the DA. This study includes the OCF as a determinant of DA. Models of Empirical Tests This paper first examines the relation between audit partner tenure and DA after the implementation of mandatory audit partner rotation rule. Specifically, this paper estimates the following equation to test H1: ,01,12 ,13 ,4 ,5 ,, || it it it it it it it DA AT1 AT 2 SIZE TACC OCF β ββ ββ βε −− =+ + + + + + (Model 1) where DA i,t is discretionary accruals; AT1 i,t is the tenure of the lead partner; AT2 i,t is the tenure of the concurring partner; SIZE i,t is the firm size; |TACC| i,t is absolute total accruals; and OCF i,t is operational cash flow. Then, this paper explores the relationship between audit partner tenure and DA under the consideration of the joint tenure of audit partner and management after the implementation of the rule that mandates audit partner rotation. Two management members, the CEO and CFO, whose positions are most subject to the influence of industry structure change and most relevant to the financial statement quality, are examined separately. In the end, this paper tests the relationship between the joint tenure of audit partner and management and DA after the new auditor rotation rule. Specifically, this paper estimates the following equations to test H2 and H3: , 0 1 ,1 2 ,1 3 ,1 4 ,1 5,6 ,7,, || it it it it it it it it it DA AT1 AT2 JT1 JT 2 SIZE TACC OCF β ββββ ββ βε − −− − =+ + + + ++ ++ (Model 2) ,01,12,13 ,4 ,5 ,, || it it it it it it it DA JT1 JT 2 SIZE TACC OCF β ββ ββ βε −− =+ + + + + + (Model 3) where DA i,t is discretionary accruals; JT1 i,t is the tenure of CEO; JT2 i,t is the tenure of CFO; JT i,t is the longest tenure between CEO and CFO; SIZE i,t is the firm size; |TACC| i,t is absolute total accruals; and OCF i,t is operational cash flow. Sample Selection Since the mandatory audit partner rotation rule started in 2003, this study deletes the data from two regulation transition years (2003-2004) and, instead, collects data from 2005 to 2010 in order to reduce the data noise arising from the regulation switching period. Then, taking into consideration regulation difference, this paper also deletes firms from financial section which is highly regulated. In view of extreme value, this study winsorizes DA or OCF at the top and bottom 1%. After deleting firms without sufficient data, the final sample covers 2,911 firm-years. All the required data have been obtained mainly from the Taiwan Economic Journal (TEJ) database and have been supplemented by the Market Observation Post System (MOPS) and Security and the Future Institute (SFI) database. AUDIT PARTNER ROTATION, AUDIT QUALITY, AND DYNAMIC INDUSTRY STRUCTURE 533 Descriptive Statistics Table 1 presents descriptive statistics of the variables. The positive mean of DA might suggest that most firms manipulate earnings upward to make financial statements look better. The average tenures of the lead and concurring audit partner (AT1 and AT2) are 4.8478 and 3.7362 years respectively. From this result, it seems that the mandatory rotation rule in Taiwan had given firms enough pressure to rotate auditors with a threat of the stock exchange’s “substantive review” procedure. The joint tenure of the audit partner and CEO is 4.1893 and the joint tenure of the audit partner and CFO is 3.853 on average. With the influence of industry structural change, the joint tenure of the audit partner and management is shorter than the tenure of the audit partner. Table 1 Descriptive Statistics Variable Min. Max. Mean S.D. DA -6.6622 3.0813 0.0479 0.4062 AT1 1 22 4.8478 3.3044 AT2 1 24 3.7362 3.0469 JT1 1 20 4.1893 2.7587 JT2 1 16 3.853 2.4606 SIZE 5.0811 9.0726 6.8499 0.5665 |TACC| 0.0001 3.065 0.0907 0.1166 OCF -0.9761 3.1215 0.0744 0.1247 Notes. DA is discretionary accruals. AT1 is tenure of the lead audit partner. AT2 is tenure of the concurring partner. JT1 is joint tenure of audit partner and CEO. JT2 is joint tenure of audit partner and CFO. SIZE is firm size. |TACC| is absolute value of total accruals. OCF is operational cash flow deflated by total asset. Table 2 provides the Pearson correlation matrix among the independent variables. Most variables have a significant correlation with DA, but those numbers are not very big. The correlation between tenure of the lead and the concurring partners (AT1 and AT2) is 0.099. This low number shows a low dependence between the lead and the concurring partners. The relationship between AT1 and JT1 (JT2) is 0.464 (0.457). Those numbers show that the dependency between audit partner and management is not very high. Those numbers suggest that firms might often make a switch of either management or audit partner to deal with the change in industry structure. The correlations of all the independent variables in each model are small, indicating that multi-collinearity does not drive the results. Table 2 Pearson Correlation Matrix DA AT1 AT2 JT1 JT2 SIZE |TACC| AT1 -0.042 ** AT2 -0.025 0.099 ** JT1 -0.022 0.464 ** 0.312 ** JT2 -0.039 * 0.457 ** 0.329 ** 0.499 ** SIZE -0.079 ** 0.017 0.06 ** 0.024 0.013 |TACC| 0.098 ** -0.091 ** -0.054 ** -0.046 ** -0.054 ** 0.013 OCF 0.139 ** -0.045 * -0.017 0.018 -0.019 0.044 ** 0.075 ** Notes. DA is discretionary accruals. AT1 is tenure of the lead audit partner. AT2 is tenure of the concurring partner. JT1 is joint tenure of audit partner and CEO. JT2 is joint tenure of audit partner and CFO. SIZE is firm size. |TACC| is absolute value of total accruals. OCF is operational cash flow deflated by total asset. ** denotes significance at the level of 0.01. * denotes significance at the level of 0.05. AUDIT PARTNER ROTATION, AUDIT QUALITY, AND DYNAMIC INDUSTRY STRUCTURE 534 Empirical Results Estimation results from Model 1 are reported in Table 3. Results for the data containing positive DA and negative DA cases are presented in Columns 1 and 3 respectively. In all cases, the coefficients of both audit partners are not significantly related to DA. These results are not consistent with the first hypothesis that audit partner tenure is positively related to audit quality after the implementation of mandatory rotation rule. However, these results are consistent with other studies that have found no significant level of accruals-based earnings management or growing-concern opinions following the implementation of the mandatory audit partner rotation rule (Cohen, Dey, & Lys, 2008; Bartov & Cohen, 2006; Chi et al., 2009; Monroe & Hossain, 2013). One possible explanation is that the increase of audit partner tenure will, in turn, increase the concern on the auditor’s independence and decrease the problem related to the auditor’s knowledge of the firm’s specific information at the same time. Table 3 Model 1 ( ,01,12 ,13 ,4 ,5 ,, || it it it it it it it DA AT 1 AT 2 SIZE TACC OCF β ββ ββ βε −− =+ + + + + + ) Variable DA > 0 DA < 0 AT1 -0.001 (-0.885) -0.006 (-1.522) AT2 -0.002 (-0.889) -0.001 (-0.249) SIZE -0.092 (-7.508) ** 0.059 (2.642) |TACC| 0.593 (12.064) ** -0.747 (-4.655) ** OCF -0.018 (-0.285) -0.101 (-1.066) Adj. R 2 0.103 0.027 N 1,747 1,164 Notes. DA is discretionary accruals. AT1 is tenure of the lead audit partner. AT2 is tenure of the concurring partner. SIZE is firm size. |TACC| is absolute value of total accruals. OCF is operational cash flow deflated by total asset. The t-value is expressed within parentheses. ** denotes significance at the level of 0.01. * denotes significance at the level of 0.05. Another possible explanation for the results of Model 1 is the lack of an important variable. In a highly competitive industry structure, firms might find better management to optimize their strategies. The change of the new management will increase a lot of uncertainties that might increase audit risk, so in Model 2, we consider the use of a joint tenure between audit partner and management to catch the industry dynamic structural change. Table 4 shows the results of Model 2. The coefficient of joint tenure between audit partner and CFO (JT2) is significant in the positive case. The negative coefficient of JT2 in the positive DA case suggests that the increased joint tenure with CFO can help auditors to lower the discretionary earnings management. The coefficient of joint tenure between audit partner and CEO (JT1) is significant in the negative case. The positive coefficient of JT1 in the negative DA case suggests that the increased joint tenure with CEO can improve auditors’ judgments on the financial statement quality by reducing the earnings management. After the control of the joint tenure level, AT1 becomes negative in the negative DA case. The negative coefficient of AT1 in the negative DA case suggests that the auditor does not have enough firm-specific knowledge to judge financial statement quality if firms change their CEOs too often to deal with the change of industry structure. From the results of Table 4, it seems that the increase of audit partner tenure cannot help auditors to improve their audit quality under the new tenure provision. This result does not support H2. AUDIT PARTNER ROTATION, AUDIT QUALITY, AND DYNAMIC INDUSTRY STRUCTURE 535 Table 4 Model 2 ( , 01 ,12 ,13 ,14 ,15 , 6 , 7 , , || it it it it it it it it it D A AT1 AT2 JT1 JT2 SIZE TACC OCF β ββββββ βε −−−− =+ + + + + + + + ) Variable DA > 0 DA < 0 AT1 0.002 (0.646) -0.009 (-1.999) * AT2 -0.0002 (0.097) -0.004 (-0.817) JT1 -0.003 (-0.928) 0.012 (1.979) * JT2 -0.007 (-2.021) * -0.002 (-0.323) SIZE -0.093 (-7.636) ** 0.059 (2.64) ** |TACC| 0.595 (12.133) ** -0.748 (-4.664) ** OCF -0.017 (-0.265) -0.113 (-1.19) Adj. R 2 0.105 0.029 N 1,747 1,164 Notes. DA is discretionary accruals. AT1 is tenure of the lead audit partner. AT2 is tenure of the concurring partner. JT1 is joint tenure of audit partner and CEO. JT2 is joint tenure of audit partner and CFO. SIZE is firm size. |TACC| is absolute value of total accruals. OCF is operational cash flow deflated by total asset. The t-value is expressed within parentheses. ** denotes significance at the level of 0.01. * denotes significance at the level of 0.05. Table 5 contains the results of Model 3 which only considers the use of joint tenure between audit partner and management to explain the audit quality. The coefficient of JT2 is significant in the positive cases. The result supports H3. The coefficients, for most of the control variables in all tables, are significant and have the expected signs, except the coefficients for OCF. All variance inflation factor (VIF) values are less than 2. The results are less likely affected by linearity problems. Table 5 Model 3 ( ,01,12,13 ,4 ,5 ,, || it it it it it it it DA JT1 JT 2 SIZE TACC OCF ββ β β β β ε −− =+ + + + + + ) Variable DA > 0 DA < 0 JT1 -0.002 (-0.755) 0.008 (-1.382) JT2 -0.006 (-1.962) * -0.007 (-1.106) SIZE -0.093 (-7.632) ** 0.061 (2.713) ** |TACC| 0.592 (12.151) ** -0.739 (-4.604) ** OCF -0.019 (-0.291) -0.102 (-1.071) Adj. R 2 0.106 0.027 N 1,747 1,164 Notes. DA is discretionary accruals. JT1 is joint tenure of audit partner and CEO. JT2 is joint tenure of audit partner and CFO. SIZE is firm size. |TACC| is absolute value of total accruals. OCF is operational cash flow deflated by total asset. The t-value is expressed within parentheses. ** denotes significance at the level of 0.01. * denotes significance at the level of 0.05. Conclusions This study addresses the issue of audit quality and the tenure of audit partners. First, we investigated the relationship between the long tenure of audit partners and audit quality using Taiwanese data from a period of time when audit partner rotation was mandatory. This study uses DA to measure audit quality. Like Chi et al. (2009), this study finds that the audit quality of firms with longer audit partner tenure is not significantly different from the audit quality of companies with shorter audit partner tenure. However, just like previous research, the result of this model may suffer a strong problem related to omitting an important variable. Second, under the consideration of industry structural change as an important omitted factor, we used the same dataset AUDIT PARTNER ROTATION, AUDIT QUALITY, AND DYNAMIC INDUSTRY STRUCTURE 536 to explore the effectiveness of the mandatory rotation rule, with the control of the stableness of industry structure, which is measured as the joint tenure between audit partner and management. After a separation of management into CFOs and CEOs, this study finds that the increase of audit partner tenure is associated with a decrease of audit quality under the control of joint tenure between audit partner and management after the implementation of a required rotation rule. Finally, this paper also found a significant relationship between audit quality and joint tenure of audit partner and management. This result implies that audit quality will be higher if the industry structure is more stable. References American Institute of Certified Public Accountants [AICPA]. (1992a). Statement of position regarding mandatory rotation of audit firms of publicly held companies. New York, NY: AICPA. American Institute of Certified Public Accountants [AICPA]. (1992b). Serving the public interest: A new conceptual framework for auditor independence. New York, NY: AICPA. Bartov, E., & Cohen, D. (2006). 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Further reproduction prohibited without permission. . of Modern Accounting and Auditing, ISSN 154 8-6 583 May 2014, Vol. 10, No. 5, 52 8-5 36 Audit Partner Rotation, Audit Quality, and Dynamic Industry Structure ∗ Lan Jyh-shyan Providence. AT1 -0 .001 (-0 .885) -0 .006 (-1 .522) AT2 -0 .002 (-0 .889) -0 .001 (-0 .249) SIZE -0 .092 (-7 .508) ** 0.059 (2.642) |TACC| 0.593 (12.064) ** -0 .747 (-4 .655) ** OCF -0 .018 (-0 .285) -0 .101 (-1 .066). JT1 -0 .002 (-0 .755) 0.008 (-1 .382) JT2 -0 .006 (-1 .962) * -0 .007 (-1 .106) SIZE -0 .093 (-7 .632) ** 0.061 (2.713) ** |TACC| 0.592 (12.151) ** -0 .739 (-4 .604) ** OCF -0 .019 (-0 .291) -0 .102