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Stock price contagion effects of low-quality audits at the individual audit partner level
journal contribution
posted on 2019-05-01, 00:00 authored by Ferdinand GulFerdinand Gul, Chee Yeow Lim, Kun Wang, Yanping XuWe use Chinese audit partner data to show that partners associated with financial reporting fraud induce share price declines among non-fraudulent firms audited by the same audit partners. In cross-sectional analyses, we find that share price declines are more pronounced when low-quality partners (LQPs) failed to issue modified audit opinions during the period in question and when the LQPs were from one of the Top 10 audit firms. Additional analyses show that investors impose larger penalties on contagion firms when fraudulent firms are larger and the time lapse between sanction and fraud commitment is shorter. The personal characteristics of LQPs (except gender) do not cause a difference in market reaction to contagion firms. Overall, our results speak to the importance of audit partner identity to stock market valuation.
History
Journal
Auditing: a journal of practice and theoryVolume
38Issue
2Pagination
151 - 178Publisher
American Accounting AssociationLocation
Lakewood Ranch, Fla.Publisher DOI
ISSN
0278-0380eISSN
1558-7991Language
EnglishPublication classification
C1 Refereed article in a scholarly journal; C Journal articleCopyright notice
2019, American Accounting AssociationUsage metrics
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