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
Citation
GUL, Ferdinand A.; LIM, Chee Yeow; WANG, Kun; and XU, Yanping.
Stock price contagion effects of low-quality audits at the individual audit partner level. (2019). Auditing: A Journal of Practice and Theory. 38, (2), 151-178.
Available at: https://ink.library.smu.edu.sg/soa_research/1801
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/10.2308/ajpt-52284