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- Title
Capital Market Consequences of Audit Office Size: Evidence from Stock Price Crash Risk.
- Authors
Callen, Jeffrey L.; Fang, Xiaohua; Xin, Baohua; Zhang, Wenjun
- Abstract
SUMMARY: This study examines the association between the office size of engagement auditors and their clients' future stock price crash risk, a consequence of managerial bad news hoarding. Using a sample of U.S. public firms with Big 4 auditors, we find robust evidence that local audit office size is significantly and negatively related to future stock price crash risk. The evidence is consistent with the view that large audit offices effectively detect and deter bad news hoarding activities in comparison with their smaller counterparts. We further explore two possible explanations for these findings, the Auditor Incentive Channel and the Auditor Competency Channel. Our empirical tests offer support for both channels. JEL Classifications: G12; G34; M49.
- Subjects
CAPITAL market; STOCK prices; AUDITOR-client relationships; BAD news
- Publication
Auditing: A Journal of Practice & Theory, 2020, Vol 39, Issue 2, p1
- ISSN
0278-0380
- Publication type
Article
- DOI
10.2308/ajpt-18-015