Auditor industry specialization and stock price crash risk : individual-level evidence

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

8 Scopus Citations
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Author(s)

  • Hua Feng
  • Ahsan Habib
  • H. J. Huang
  • Bao-Lei Qi

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)427-453
Journal / PublicationAsia-Pacific Journal of Accounting and Economics
Volume28
Issue number4
Online published1 Mar 2019
Publication statusPublished - 2021

Abstract

We investigate the effect of individual auditor industry specialization on stock price crash risk. Although research on individual auditors has been growing, we are not aware of any prior studies that investigate industry specialization at the individual auditor-level and crash risk. Using a large sample of Chinese stocks spanning the period 2003–2015, we find a statistically significant and negative association between individual auditor industry specialization and stock price crash risk after controlling the firm-level effect. Our mediation tests suggest that individual auditor industry specialization decreases the risk of price crash by mitigating earnings manipulation. We further document that the negative association is more pronounced for firms that switch from non-specialist to specialist auditors. We also find some evidence that an auditor’s personal characteristics moderate the association between auditor industry specialization and crash risk. Our results remain robust to alternative measures of individual auditor industry specialization and sensitivity checks.

Research Area(s)

  • Auditor industry specialization, China, earnings quality, stock price crash risk