Auditing the Auditors and Stock Crashes: International Evidence

Speaker: Prof. Qingyuan Li (Wuhan University

Topic:	Auditing the Auditors and Stock Crashes: International Evidence
Time&Date:	15:00-16:15 pm, 2019/3/29 (Friday)
Venue:	Room 625, Zhiren Building
Speaker:	Prof. Qingyuan Li (Wuhan University)
Abstract:	We investigate the impact of the initiations of national audit inspection programs on firm-specific stock crash risk in 38 countries. The staggered commencement of the inspection regimes in different countries allows us to identify the effect of audit quality on crash risk. We document a significant decrease (32.39%) in a firm’s crash risk subsequent to the initiations of audit inspections. This effect is stronger for small auditors, and for auditors with limited industry expertise and long tenure. We explore the mechanisms through which audit inspections affect crash risk. We find that the effect of inspection programs on crash risk is driven by client firms facing higher ex ante inspection risk, as well as client firms in which auditors play an important role in monitoring managers.