Crash Risk and the Auditor-Client Relationship

• 成果类型: Article
• 署名作者: Callen, Jeffrey L.; Fang, Xiaohua
• 署名单位: University of Toronto; State University System of Florida; Florida Atlantic University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12311
• 发表日期: 2017
• 页码: 1715-1750
• 关键词: industry specialization; firm tenure; institutional investors; conditional skewness; earnings management; LITIGATION RISK; partner tenure; JUMP-RISK; QUALITY; MARKET

摘要

This study examines whether the term of the auditor-client relationship (i.e., auditor tenure) is associated with future stock price crash risk measured both ex ante and ex post. Using a large sample of U.S. public firms with Big 4 auditors, we find robust evidence that auditor tenure is negatively related to one-year-ahead stock price crash risk. The evidence is consistent with monitoring-by-learning where development of client-specific knowledge over the term of the auditor-client relationship enhances auditors' ability to detect and deter bad news hoarding activities by clients, thereby reducing future crash risk. This result holds even after controlling for endogeneity of the tenure/crash risk relation. We further provide evidence indicating that option market investors do not fully incorporate the information contained in the term of auditor-client relationship in predicting future stock price crash risk. Our empirical results have important policy implications for regulators concerned with ensuring auditor independence.