Abstract
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.
| Original language | English |
|---|---|
| Pages (from-to) | 1-26 |
| Number of pages | 26 |
| Journal | Auditing |
| Volume | 39 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - May 2020 |
Bibliographical note
Funding Information:We thank Jayanthi Krishnan (editor) and two anonymous referees for their constructive comments and suggestions. We are also grateful to the workshop and conference participants at the University College Dublin, Wilfrid Laurier University, York University, the 2014 Canadian Academic Accounting Association Annual Conference, and the 2014 Eurasia Business and Economics Society Conference for their helpful comments. Financial support from Dalhousie University, Florida Atlantic University, University of Toronto, and the Social Sciences and Humanities Research Council of Canada is highly appreciated.
Publisher Copyright:
© 2020, American Accounting Association. All rights reserved.
ASJC Scopus Subject Areas
- Accounting
- Finance
- Economics and Econometrics