Audit Partner Specialization and Future Stock Price Crash Risk: Evidence from China

Posted: 10 Jun 2017

See all articles by Ahsan Habib

Ahsan Habib

Massey University - School of Accountancy; Massey University

Hedy Jiaying Huang

School of Accountancy, Albany Campus

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management

Date Written: June 9, 2017

Abstract

We investigate the association between audit partner industry specialization and future stock price crash risk. Although research on audit partners has been growing, we are not aware of any prior studies that investigate partner-level specialization and crash risk. Using a large sample of Chinese stocks spanning the period 2000-2015, we find a statistically significant and negative association between auditor industry specialization and stock price crash risk. The result is consistent with the proposition that high quality auditors constrain bad news hoarding by managers. We further document that the negative association is more pronounced for firms who switch from non-specialist audit partners to specialist audit partners. We also find some evidence that audit partners’ personal characteristics moderate the association between partner specialization and crash risk. Our results remain robust to alternative measures of partner specialization and to controls for endogeneity.

Keywords: audit partner specialization, crash risk, China

JEL Classification: G12, G30, M41, M42

Suggested Citation

Habib, Ahsan and Huang, Hedy Jiaying and Qi, Baolei, Audit Partner Specialization and Future Stock Price Crash Risk: Evidence from China (June 9, 2017). Available at SSRN: https://ssrn.com/abstract=2983707

Ahsan Habib (Contact Author)

Massey University - School of Accountancy ( email )

Auckland
New Zealand

Massey University ( email )

Auckland
New Zealand

Hedy Jiaying Huang

School of Accountancy, Albany Campus ( email )

Auckland
New Zealand

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

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