The global financial crisis in 2008 and the fluctuations in China’s stock market in 2015 by big margin underscore the significance to study stock price crash risk. The existing literature mainly focuses on the factors influencing stock price crash risk but ignores direct tests of its economic consequences. This paper studies the economic consequences of firms’ stock price crash risk from a perspective of audit fees to discuss whether and how auditors use clients’ stock price crash risk when doing decision-making. It finds that audit fees are positively correlated with firms’ stock price crash risk, which means that auditors take stock price crash risk into consideration when making audit decisions. The positive relation between stock price crash risk and audit fees is more significant when firms are SOEs, or firms do no finish non-tradable shares reform, or firms are in more developed province, or auditors are Big8. Further analyses indicate that firms’ stock price crash risk increases auditors’ audit time, which means that the increase in audit fees caused by stock price crash risk include price premium for audit efforts. This paper finds that firms’ stock price crash risk has a spillover effect on auditors’ audit pricing decisions and enriches the research concerning the economic consequences of stock price crash risk from a perspective of auditors.
Does Firms’ Stock Price Crash Risk Affect Audit Fees?
Foreign Economics & Management Vol. 39, Issue 09, pp. 83 - 97 (2017) DOI:10.16538/j.cnki.fem.2017.09.007
Cite this article
Chu Jian, Fang Junxiong. Does Firms’ Stock Price Crash Risk Affect Audit Fees?[J]. Foreign Economics & Management, 2017, 39(9): 83–97.