Accounting Quality and Audit Attributes on the Stock Price Crashes in an Emerging Market

Abstract

This study addresses the relationship between accounting quality and audit attributes (i.e., audit quality, auditor industry specialization, audit concentration, and audit fees) with companies’ SPCRs listed on the Iraqi Stock Exchange. A multivariate regression model was used to test the hypotheses. The research hypotheses were tested using a sample of 210 observations of the listed Iraqi firms from 2013 to 2018 and a multiple regression model based on the random-effects model’s panel data technique. The findings indicate a negative and significant relationship between the accounting quality, audit, auditor industry specialization and SPCRs. Results also conveyed a meaningful and positive association between stock price crash risk (SPCR) and audit fees. The results did not confirm the relationship between corporate governance and audit concentration with SPCR. The primary research model was tested with additional methods (t + 1, fixed effects, ordinary least squares). Since this is the first study addressing this issue in the emerging markets, it provides users, analysts, and legal entities with helpful information about audit attributes that significantly affect SPCR. These results also contribute to developing science and knowledge in this field and fill the literature gap.

The Impact of Firm Characteristics on Future Stock Price Crash Risk: Evidence from Egypt

“…Furthermore, Sultana et al (2022) have found that audit quality measured by (BIG4) has a significant positive impact on FSPCR. In the same context, Salehi et al (2022) have found that audit quality measured by (fees) has a significant positive impact on FSPCR.…”

“…Numerous studies have been released examining the impact of audit quality on FSPCR such as (Robin & Zhang, 2015;Khajavi & Zare, 2016;Lim et al, 2016;Yeung & Lento, 2018;Li et al, 2019;Chae et al, 2020;Salehi et al, 2022) and there is a clear contradiction in results, leading the study to investigate at the impact of audit quality on FSPCR. According to (Robin & Zhang, 2015;Khajavi & Zare, 2016;Lim et al, 2016;Yeung & Lento, 2018;Chae et al, 2020), there is a significant negative impact of audit quality on FSPCR.…”

The moderating impact of institutional shareholders on the relationship between audit quality and firm value

“…Afifa and Abdallah (2020) found that audit quality and earnings separately drove the share price up. Salehi et al (2022) investigated the risk of stock price crashes and audit quality (auditor industry specialization, and audit fees). The findings found a significant and favourable relationship between the stock price crash and audit fees.…”

The audit committee and dividend policy: an empirical study of the post-SOX era

“…Higher quality reporting makes value-destroying projects more visible to shareholders and enhances their ability to monitor and contract with managers (Koo et al , 2017; Biddle et al , 2009; Bushman and Smith, 2001). Thus, by ensuring higher quality of financial information disclosure, the work of audit committees enables investors to contract with managers on terms that better align the interest of the managers to theirs, thereby mitigating the incentives of managers to waste free cash flows on unprofitable projects or hide bad news (Salehi et al , 2022).…”