Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Abnormally long audit report lags and future stock price crash risk: evidence from China

Abnormally long audit report lags and future stock price crash risk: evidence from China Although a substantial body of literature investigates the determinants of audit report lag (ARL), scant empirical evidence exists on the consequences of ARL. The purpose of this paper is to examine the association between abnormally long ARL and future stock price crash risk.Design/methodology/approachThis quantitative study employed a large scale (14,445 firm-year observations) of annual financials, audit and ownership information for the Chinese listed companies during 2002–2013 which were retrieved from the China Stock Market and Accounting Research database.FindingsThis study finds evidence that abnormally long ARL increases the risk of a future stock price crash. Furthermore, the study finds that this adverse consequence is more pronounced for firms with a poor internal control environment.Practical implicationsRecently literature started to explore the consequences of abnormal ARL such as going concern audit opinion and restatements in the subsequent periods. This paper reveals that abnormal ARL has consequences for investor wealth losses as well. This is relevant in China, where the ongoing economic growth has attracted, and will continue to attract, a growing body of domestic and international investors. Understanding what factors could expose investors to wealth losses is of paramount importance for allocating their scarce capital.Originality/valueThis study extends the scant literature on the consequences of ARL, and provides useful insights for the Chinese regulatory authorities when considering the appropriateness of the current filing deadline for listed firms. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Managerial Finance Emerald Publishing

Abnormally long audit report lags and future stock price crash risk: evidence from China

Download PDF
25 pages

Loading next page...
 
/lp/emerald-publishing/abnormally-long-audit-report-lags-and-future-stock-price-crash-risk-JsEnTkApLE
Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1743-9132
DOI
10.1108/ijmf-07-2018-0213
Publisher site
See Article on Publisher Site

Abstract

Although a substantial body of literature investigates the determinants of audit report lag (ARL), scant empirical evidence exists on the consequences of ARL. The purpose of this paper is to examine the association between abnormally long ARL and future stock price crash risk.Design/methodology/approachThis quantitative study employed a large scale (14,445 firm-year observations) of annual financials, audit and ownership information for the Chinese listed companies during 2002–2013 which were retrieved from the China Stock Market and Accounting Research database.FindingsThis study finds evidence that abnormally long ARL increases the risk of a future stock price crash. Furthermore, the study finds that this adverse consequence is more pronounced for firms with a poor internal control environment.Practical implicationsRecently literature started to explore the consequences of abnormal ARL such as going concern audit opinion and restatements in the subsequent periods. This paper reveals that abnormal ARL has consequences for investor wealth losses as well. This is relevant in China, where the ongoing economic growth has attracted, and will continue to attract, a growing body of domestic and international investors. Understanding what factors could expose investors to wealth losses is of paramount importance for allocating their scarce capital.Originality/valueThis study extends the scant literature on the consequences of ARL, and provides useful insights for the Chinese regulatory authorities when considering the appropriateness of the current filing deadline for listed firms.

Journal

International Journal of Managerial Finance – Emerald Publishing

Published: Jul 31, 2019

Keywords: China; Internal control; Stock price crash risk; Abnormally long audit report lags

References

  • An international perspective on audit report lag: a synthesis of the literature and opportunities for future research
    Abernathy, J.L.; Barnes, M.; Stefaniak, C.; Weisbarth, A.
  • Stock price synchronicity, crash risk, and institutional investors
    An, H.; Zhang, T.
  • CEO age and stock price crash risk
    Andreou, P.C.; Louca, C.; Petrou, A.P.
  • Chief executive officer equity incentives and accounting irregularities
    Armstrong, C.S.; Jagolinzer, A.D.; Larcker, D.F.
  • The effect of SOX internal control deficiencies and their remediation on accrual quality
    Ashbaugh-Skaife, H.; Collins, D.W.; Kinney Jr, W.R.; LaFond, R.
  • An empirical analysis of audit delay
    Ashton, R.H.; Willingham, P.R.; Elliot, R.K.
  • Audit structure and other determinants of audit report lag: an empirical analysis
    Bamber, E.M.; Bamber, L.S.; Schoderbek, M.P.
  • The relationship between audit report lags and future restatements
    Blankley, A.I.; Hurtt, D.N.; MacGregor, J.E.
  • Regulating the timing of disclosure: insights from the acceleration of 10-K filing deadlines
    Bryant-Kutcher, L.; Peng, E.Y.; Weber, D.P.
  • Institutional investor stability and crash risk: monitoring versus short-termism?
    Callen, J.L.; Fang, X.
  • Short interest and stock price crash risk
    Callen, J.L.; Fang, X.
  • Social trust and stock price crash risk: evidence from China
    Cao, C.; Xia, C.; Chan, K.C.
  • An examination of audit delay: further evidence from New Zealand
    Carslaw, C.A.; Kaplan, S.E.
  • Earnings management of firms reporting material internal control weaknesses under Section 404 of the Sarbanes-Oxley act
    Chan, K.; Farrell, B.; Lee, P.
  • Determinants and implications of long audit reporting lags: evidence from China
    Chan, K.H.; Luo, V.W.; Mo, P.L.L.
  • Forecasting crashes, trading volume, past returns, and conditional skewness in stock prices
    Chen, J.; Hong, H.; Stein, J.C.
  • Internal control and stock price crash risk: evidence from China
    Chen, J.; Chan, K.C.; Dong, W.; Zhang, F.
  • Guidance on the Practice Criteria for Certified Public Accountants of China No. 5 – Audit Report
  • Auditing Regulations for the Certified Public Accountants No. 1501
  • Auditor size and audit quality
    DeAngelo, L.E.
  • Detecting earnings management
    Dechow, P.; Sloan, R.; Sweeney, A.
  • Product Information: Internal Control Database
  • Risk measurement when shares are subject to infrequent trading
    Dimson, E.
  • Accruals quality and internal control over financial reporting
    Doyle, J.; Ge, W.; McVay, S.
  • Determinants of weakness in internal control over financial reporting
    Doyle, J.; Ge, W.; McVay, S.
  • Auditor industry specialization and stock price crash risk: individual-level evidence
    Feng, H.; Habib, A.; Huang, H.J.; Qi, B.-L.
  • Positive externality of analyst coverage upon audit services: evidence from China
    Fang, J.; Haw, I.‐.M.; Yu, V.; Zhang, X.
  • Statement of Financial Accounting Concepts No. 8 – Conceptual Framework for Financial Reporting
  • Abnormal real operations, real earnings management, and subsequent crashes in stock prices
    Francis, B.; Hasan, I.; Li, L.
  • Auditor-provided tax services and stock price crash risk
    Habib, A.; Hasan, M.M.
  • Business strategy, overvalued equities, and stock price crash risk
    Habib, A.; Hasan, M.M.
  • Stock price crash risk: review of the empirical literature
    Habib, A.; Hasan, M.M.; Jiang, H.
  • Determinants of audit report lag: A meta-analysis
    Habib, A.; Bhuiyan, M.B.U.; Huang, H.J.; Miah, M.S.
  • Differences of opinion, short-sales constraints, and market crashes
    Hong, H.; Stein, J.
  • Opaque financial reports, R2, and crash risk
    Hutton, A.P.; Marcus, A.J.; Tehranian, H.
  • Voluntary disclosure of internal control weakness and earnings quality: evidence from China
    Ji, X.D.; Lu, W.; Qu, W.
  • R2 around the world: new theory and new tests
    Jin, L.; Myers, S.C.
  • Financial reporting opacity and expected crash risk: evidence from implied volatility smirks
    Kim, J.-B.; Zhang, L.
  • CFOs versus CEOs: equity incentives and crashes
    Kim, J.-B.; Li, Y.; Zhang, L.
  • Corporate tax avoidance and stock price crash risk: firm-level analysis
    Kim, J.-B.; Li, Y.; Zhang, L.
  • Additional evidence on audit report lag
    Knechel, W.R.; Payne, J.L.
  • A modified audit production framework: evaluating the relative efficiency of audit engagements
    Knechel, W.R.; Rouse, P.; Schelleman, C.
  • Performance matched discretionary accrual measures
    Kothari, S.P.; Leone, A.J.; Wasley, C.E.
  • Do managers withhold bad news?
    Kothari, S.P.; Shu, S.; Wysocki, P.D.
  • Unintended consequences of accelerated filings: are mandatory reductions in audit delay associated with reductions in earnings quality?
    Lambert, T.A.; Jones, K.; Brazel, J.F.
  • Do political connections affect stock price crash risk? Firm-level evidence from China
    Lee, W.; Wang, L.
  • Corporate governance and accounting conservatism: evidence from the banking industry
    Leventis, S.; Dimitropoulos, P.; Owusu-Ansah, S.
  • Managerial ability and internal control quality: evidence from China
    Li, H.
  • Internal control and corporate innovation: evidence from China
    Li, P.; Shu, W.; Tang, Q.; Zheng, Y.
  • Communist party control and stock price crash risk: evidence from China
    Li, X.; Chan, K.C.
  • Trust and stock price crash risk: evidence from China
    Li, X.; Wang, S.S.; Wang, X.
  • The association between earnings persistence and internal control quality: evidence from China
    Lin, M.F.; Yu, P.
  • Corporate governance and earnings management in the Chinese listed firms: a tunnelling perspective
    Liu, Q.; Lu, Z.
  • Direct and indirect effects of internal control weaknesses on accrual quality: evidence from a unique Canadian regulatory setting
    Lu, H.; Richardson, G.; Salterio, S.
  • Political connections and stock price crash risk: evidence from China
    Luo, J.H.; Gong, M.; Lin, Y.; Fang, Q.
  • Analysts’ cash flow forecasts, audit effort, and audit opinions on internal control
    Mao, M.Q.; Yu, Y.
  • Internal control weaknesses and accounting conservatism: evidence from the post Sarbanes-Oxley Period
    Mitra, S.; Jaggi, B.; Hossain, M.
  • The Basic Standard of Enterprise Internal Control
  • Audit report lag: the role of auditor type and increased competition in the audit market
    MohammadRezaei, F.; Mohd‐Saleh, N.
  • Political incentives to suppress negative information: evidence from Chinese listed firms
    Piotroski, J.D.; Wong, T.J.; Zhang, T.
  • Do industry-specialist auditors influence stock price crash risk?
    Robin, A.; Zhang, H.
  • The central role of the propensity score in observational studies for causal effects
    Rosenbaum, P.R.; Rubin, D.B.
  • Earnings management through real activities manipulation
    Roychowdhury, S.
  • Market overview
  • Market overview
  • Securities Law of the People’s Republic of China (2014 Amendment)
  • Principal-principal agency problems and stock price crash risk: evidence from the split-share structure reform in China
    Sun, J.; Yuan, R.; Cao, F.; Wang, B.
  • Audit report lags after voluntary and involuntary auditor changes
    Tanyi, P.; Raghunandan, K.; Barua, A.
  • Monthly reports
  • Audit qualification and the timeliness of corporate annual reports
    Whittred, G.P.; Zimmer, I.
  • Do star analysts know more firm-specific information? Evidence from China
    Xu, N.; Chan, K.C.; Jiang, X.; Yi, Z.
  • Analyst herding and stock price crash risk: evidence from China
    Xu, N.; Jiang, X.; Chan, K.C.; Wu, S.
  • Analyst coverage, optimism, and stock price crash risk: evidence from China
    Xu, N.; Jiang, X.; Chan, K.C.; Yi, Z.
  • Excess perks and stock price crash risk: evidence from China
    Xu, N.; Li, X.; Yuan, Q.; Chan, K.C.
  • Directors’ and officers’ liability insurance and stock price crash risk
    Yuan, R.; Sun, J.; Cao, F.
  • Corporate philanthropy and stock price crash risk: evidence from China
    Zhang, M.; Xie, L.; Xu, H.