Stock Price Contagion Effects of Low-Quality Audits at the Individual Audit Partner Level

Ferdinand A. Gul; Chee Yeow Lim; Kun Wang; Yanping Xu

doi:10.2308/ajpt-52284

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Stock Price Contagion Effects of Low-Quality Audits at the Individual Audit Partner Level

Journal article

Peer reviewed

Stock Price Contagion Effects of Low-Quality Audits at the Individual Audit Partner Level

Ferdinand A. Gul, Chee Yeow Lim, Kun Wang and Yanping Xu

Auditing, Vol.38(2), pp.151-178

2019

DOI: https://doi.org/10.2308/ajpt-52284

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Abstract

audit partner

audit quality

price contagion effects

market reactions

SUMMARY: We 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. JEL Classifications: M41; M42; M48.

Details

Title: Stock Price Contagion Effects of Low-Quality Audits at the Individual Audit Partner Level
Authors: Ferdinand A. Gul (Author) - Deakin University
Chee Yeow Lim (Author) - Singapore Management University
Kun Wang (Author) - Tsinghua University
Yanping Xu (Author) - Jinan University
Publication details: Auditing, Vol.38(2), pp.151-178
Publisher: American Accounting Association
DOI: 10.2308/ajpt-52284
ISSN: 1558-7991
Organisation Unit: University of the Sunshine Coast, Queensland; School of Business and Creative Industries
Language: English
Record Identifier: 99679191802621
Output Type: Journal article

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Web Of Science research areas: Business, Finance

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