Critical audit matters and stock price crash risk

Xiaoqiang Zhi, Zuming Kang

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PDF(72681 KB)
Front. Bus. Res. China ›› 2021, Vol. 15 ›› Issue (1) : 64-88. DOI: 10.1186/s11782-021-00102-z
RESEARCH

Critical audit matters and stock price crash risk

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Abstract

Using manually collected data on the number and category of critical audit matters (CAMs) in the period 2016–2017, we investigate the hitherto unexplored questions of whether CAMs affect firm-specific crash risk, how CAMs influence crash risk in the Chinese capital market, and recognize CAMs that contain incremental information. Our findings are as follows: (1) Crash risk decreases after implementing the new audit standard requiring the disclosure of CAMs; (2) CAMs release negative information and change the capital market information environment; (3) only corporateidiosyncratic CAMs contain incremental information; (4) crash risk is mitigated only by CAMs disclosed by companies with a high shareholding of institutional investors. The main conclusion of our study is a positive assessment of the new audit standard and of CAMs in terms of protecting the interests of investors and strengthening the stability of the capital market to provide a new perspective for supervising the implementation of the new audit standard.

Keywords

Critical audit matters (CAMs) / Crash risk / Incremental information / New audit standard / Corporate-idiosyncratic CAMs

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Xiaoqiang Zhi, Zuming Kang. Critical audit matters and stock price crash risk. Front. Bus. Res. China, 2021, 15(1): 64‒88 https://doi.org/10.1186/s11782-021-00102-z

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2021 Higher Education Press and Springer
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