Auditor Industry Specialization And Stock Price Crash Risk

Stock price crash is defined as the precipitous and rapid decline in the prices of shares traded on a stock exchange,which could cause the loss of the investors and loss of investor confidence.Crash risk is defined as the conditional.skewness of return distribution,and it is important for risk management and investment decisions.Prior research concerning the association between auditor industry specialization and stock price crash focus on the prospect of frim,level auditor industry specialization but not the auditor-level industry specialization.Using a large sample of Chinese firms for the period 2006-2015,we provide robust and strong evidence that auditor industry specialization is negatively associated with firm-specific stock price crash risk.We argue that auditors with industry specialization reduce firm-specific stock price crash risk because they are of information intermediary and they can play the role of corporate governance.And the association is weaker when the clients are state-owned enterprises or when the clients are in large scale or making profits.In addition,the association between auditor industry specialization and stock price crash risk is weaker when the CPA firm is one of the Big 4 firms.This study finds that not only the firm-level industry specialization but also the auditor-level industry specialization could mitigate the firm-specific stock price crash risk.In addition,this study also extended the range of the research about the stock price crash risk by studying the association between auditor industry specialization and stock price crash risk.