The study examines how auditor tenure affects investors' perception of audit quality. It is motivated by the ongoing debate on the effect of auditor tenure on audit quality and the recent regulation approval on mandatory auditor rotation at the EU level, which is justified by the concern that longer auditor tenure impairs auditor independence and thus lowers audit quality. Perceived earnings quality, as measured by the earnings response coefficient from returns‐earnings regression, is used as a proxy for investors’ perception of audit quality. Using a sample of 2,320 firm‐year observations from German listed firms between 2006 and 2013, the study provides evidence of a non‐linear relationship between auditor tenure and perceived earnings quality. The results suggest that investors perceive lower earnings quality during the early and later years of an auditor–client relationship. This perception does not change during the investigation period. Furthermore, the results show that earnings quality is perceived as highest when auditor tenure is 8–9 years.