Impact of Auditor Turnover on Stock Price Crash Risk: Insights from China's Capital Market

Abstract

This study investigates the impact of auditor changes on stock price crash riskwithin the unique context of China's capital market. Drawing on data fromChinese corporations from 2015 to 2023, we examine how this relationshipis moderated by audit quality. Leveraging established methods, we calculate crashrisk using Negative Conditional Skewness (NCSKEW) and Down-to-up Volatility(DUVOL). Our findings reveal a positive association between auditor changes andincreased crash risk, an effect amplified by higher audit fees and prior audit violations. Conversely, strong audit quality, indicated by longer tenures, Big Four affiliation, and non-state ownership, significantly mitigates this risk. Our results underscore the importance of audit quality in maintaining market stability withinChina's complex regulatory landscape. Policymakers and investors should becognizant of potential risks associated with auditor changes, especially whenindicators suggest compromised audit quality.