Audit Quality and Stock Return Co-Movement: Evidence from Vietnam

Abstract

This paper aims to explore the relationship between the quality of the audit and the level of stock return co-movement in the context of the Vietnamese emerging market. The empirical study is designed based on the quatitative method and deductive approach. The panel datasetincludes 256listed firmsfrom different industries,with 1115 firm-year observations on Ho Chi Minh City Stock Exchange for the period from 2014 to 2018. In the research, we built the econometric regression model, using stock return synchronicity and audit quality as the dependent and independent variable, respectively. Some control variables are also added to the econometric regression models as they are well-documented in prior research to have an effect on stock price synchronicity. To improve the accuracy of the regression coefficients, besidetheOrdinary Least Squares, we employ theRandom Effects Modeland theFixed Effects Model for better statistical analysis of panel data set. The resultsshow that the quality of the audit is positively correlated to stock price synchronicity. This finding suggests that stock returns of companies with higher quality of the audit are more synchronous with the market. Results for other control variables also support our reasoning for the main findings.

The Influence of Fundamental Factors and Systemic Risk on Stock Return Moderated by Audit Quality

“…The combination 0f errone0us financial reporting and inadequate auditing standards can result in significant financial losses for users, or worse, total financial ruin. Audited reliable financial reporting increases management accountability and is an effective tool for shareholders to monitor management performance (Pham et al, 2020). Market accounts play an important role in reducing information asymmetry between insiders and outsiders, improving the quality of information provided in financial statements, and reducing earnings management (Almarayeh et al, 2020).…”

“…Anjani & Syarif (2019) in their research also found the effect of return on equity, debt to equity, and earnings per share partially on stock returns of pharmaceutical companies. While Pham et al (2020) in their research revealed that audit quality is positively correlated with stock prices. These findings show that the stock returns of companies with higher audit quality are more in sync with the market.…”

Investigating Fraud Risks Assessment Practices in Public Sector Audits

“…Competence Requirements Derrived from Misstatement result from fraudulent financial reporting Fulfilling the ethical code and professionalism (Ali et al, 2020;Fatt, 1995;Lai et al, 2018) Evaluate uncertainty of company's business process (Davies & Aston, 2011;Gibbins et al, 2001;Paino et al, 2014;Pedrosa & López-Corrales, 2018) Disclose the transparency of financial statements (Legoria et al, 2018;Muñoz-Izquierdo et al, 2019) Compliance with audit standard (Harahap et al, 2017;Melé, 2005;Rachmadia et al, 2020;Veiga, 2004) Giving the best quality of audit (DeAngelo, 1981;Harahap et al, 2017) Reduce conflict (Pham et al, 2020) Reduce earnings management risks (Almarayeh et al, 2020;Chae et al, 2020;Cohen et al, 2008)…”

Stock Price Co-movement and Firm’s Ownership Structure in Emerging Market

“…RISK is an indicator of the market votatility and measured by standard deviation of the stock price's daily return. The wider range of the stock standard deviation signals the more unpredictable the price action, and the greater risk (Pham, Vu, Nguyen, & Nguyen, 2020).…”

“…Especially, this assertion seems to become a dominant trend for recent studies which has been carried out in emerging markets. Commonly, in these markets, studies reveal the low level of stock prices' co-movement, and they proposed that the asynchronous movement of stock return with market's return is explained by firm's inefficient corporate governance mechanism and the wide market's poor protection of property rights (Pham, Vu, Nguyen, & Nguyen, 2020).…”