The Impact Of Audit Quality On Stock Price Crash Risk And The Path Test

Since 1990s,the capital market has developed rapidly with government support.Its stability is of vital importance to the healthy and stable development of China's economy.But since it started late and lack of experiences,the capital market faced a lot of troubles during its development.Share price crash,especially the crash risk,is one of the troubles which severely damaged the stability of capital market.The crash in 2007 and 2015 left huge impact to both investors and regulators.With the development of the capital market,auditors,an external third party independent of the company,play an important role in alleviating agency conflict.High-quality audit is more professional,it can find and rectify misreporting in accounting information,reduce agency costs and lower the crash risk.On the contrary,poor-quality audit cannot play a role like above.Research on the crash risk is from the perspective if the company's internal characteristics influence.One in a thousand focuses on the audit,which is an important role in alleviating agency conflict.This paper aims to discuss the relationship and transmission route between audit and crash risk in the position of external audit.Based on the principal-agent theory,the asymmetric information theory and the insurance theory,this paper analyzes the mechanism how external audit influences crash risk.It also analyzes the mediation effect that bad-news hoarding has between external audit and crash risk and gives the hypotheses of this paper.(1)High-quality audit could reduce the crash risk;(2)High-quality audit could mitigate bad-news hoarding;(3)The bad-news hoarding plays a mediation role between external audit and crash risk.To test the hypotheses,this paper uses the samples of Chinese A-share listed firms during 2011-2015.After eliminating some inappropriate samples,the paper gets 5529 observation samples.On the basis of literal review and building theoretical analytical framework,the paper studies the relationship and transmission route between external audit and crash risk,by using descriptive statistical analysis and regression analysis.The conclusions of this paper are:(1)the quality of external audit has negative correlation with crash risk,in other words,high-quality external audit could reduce the crash risk;(2)the bad-news hoarding plays a mediation role between external audit and crash risk,that is,high-quality external audit reduces the crash risk via mitigating bad-news hoarding.The innovation of the paper includes finding out one of the influence factors of crash risk focusing on the external environment of corporation governance and revealing the transmission route between external audit and crash risk.