Publication Type
Working Paper
Publication Date
10-2016
Abstract
This study investigates the existence of price contagion effects for the low-quality audits of individual audit partners and the associated reputational losses in China. Low-quality partners are identified as those whose clients have been sanctioned by regulators for financial reporting fraud. Our evidence shows that sanctions induce a significant stock price decline among the contagion firms that share common low-quality partners and common low-quality audit firms; however, the decline is greater for the former. We also find that the price contagion effects of low-quality partners are more pronounced for firms located in regions with weak institutional development and less pronounced for state-owned firms. Finally, we find that low-quality audit partners suffer from reputational losses in terms of a higher likelihood of partner turnover and a reduced market share at the partner level.
Keywords
Audit partner, Audit quality, Contagion effects, Reputational loss, Market reactions
Discipline
Accounting | Corporate Finance | Finance and Financial Management
Research Areas
Corporate Governance, Auditing and Risk Management
First Page
1
Last Page
62
Identifier
10.2139/ssrn.2679310
Citation
GUL, Ferdinand A.; LIM, Chee Yeow; WANG, Kun; and XU, Yanping.
The Price Contagion Effects of Financial Reporting Fraud and Reputational Losses: Evidence from the Individual Audit Partner Level. (2016). 1-62.
Available at: https://ink.library.smu.edu.sg/soa_research/1589
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2139/ssrn.2679310