Critical audit matters and stock price crash risk

Xiaoqiang Zhi () and Zuming Kang ()
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Xiaoqiang Zhi: Renmin University of China
Zuming Kang: Renmin University of China

Frontiers of Business Research in China, 2021, vol. 15, issue 1, 1-25

Abstract: 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 corporate-idiosyncratic 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 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1186/s11782-021-00102-z

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