Publication Type

Journal Article

Version

acceptedVersion

Publication Date

5-2019

Abstract

We use Chinese audit partner data to show that partners associated with financial reporting fraudinduce share price declines among non-fraudulent firms audited by the same audit partners. In cross-sectionalanalyses, we find that share price declines are more pronounced when low-quality partners (LQPs) failed to issuemodified 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 largerand the time lapse between sanction and fraud commitment is shorter. The personal characteristics of LQPs (exceptgender) do not cause a difference in market reaction to contagion firms. Overall, our results speak to the importanceof audit partner identity to stock market valuation.

Keywords

audit partner; audit quality; price contagion effects; market reactions

Discipline

Accounting

Research Areas

Corporate Reporting and Disclosure

Publication

Auditing: A Journal of Practice and Theory

Volume

38

Issue

2

First Page

151

Last Page

178

ISSN

0278-0380

Identifier

10.2308/ajpt-52284

Publisher

American Accounting Association

Additional URL

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

Included in

Accounting Commons

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