Audit Tenure and the Equity Risk Premium

it is observed that most firms in Jordan retain the audit firm for long period of time, this long auditor-client relationship can have adverse effect on perceived audit quality; as long-term relationships between companies and their auditors create a level of closeness that impairs auditor independence and reduces audit quality, this close relationship may create a conflict of interest for the auditor and can adversely affect the auditing process (opinion/integrity); The auditor could identify closely with management''s perspective and not exhibit sufficient professional skepticism. In addition, management can take advantage of the auditor''s conflict by making a personal appeal for compassion and support. This leads us to the following question: Does long audit firm tenure affect perceived audit quality? This study will investigate whether audit firm tenure affect perceived audit quality by examining the relation between audit firm tenure and the client –specific equity risk premium -that is, the excess of client specific cost of equity capital over the risk free interest rate.