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

2019 ◽  
Vol 15 (4) ◽  
pp. 611-635
Author(s):  
Ahsan Habib ◽  
Hedy Jiaying Huang
Keyword(s):  
Internal Control ◽  
Stock Price ◽  
Large Scale ◽  
Crash Risk ◽  
Research Database ◽  
Audit Report ◽  
Content Type ◽  
Audit Opinion ◽  
Listed Firms ◽  
International Investors

PurposeAlthough 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.

Executive pay bandwagon and stock price crash risk

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hong Luo ◽  
Junfeng Wu ◽  
Wan Huang ◽  
Yongliang Zeng
Keyword(s):  
Earnings Management ◽  
Internal Control ◽  
Stock Price ◽  
Tax Avoidance ◽  
Crash Risk ◽  
Executive Pay ◽  
Data Set ◽  
Content Type ◽  
Listed Firms ◽  
The Impact

Purpose This paper aims to investigate the impact of executives’ self-interested behaviors induced by the pay bandwagon on stock price crash risk in Chinese listed firms and attempt to shed light on the influencing channels of this effect. Design/methodology/approach The empirical analysis is based on the panel data set which contains information on the executives and stock price of 11,710 firm-year observations over the period 2007–2015. The multiple linear regression models are implemented to examine whether the executive pay bandwagon affects corporate future stock price crash risk. Then, earnings management, tax avoidance and overinvestment are applied as the behavior choice of executive pay bandwagon to analyze the potential influencing channels. Findings Results indicate that the lower the executives’ pay is than the median pay level of executives in firms of similar size and industry, incentives of pay bandwagon are stronger, leading to a higher future stock price crash risk. Moreover, evidence shows that the positive relationship between executive pay bandwagon and crash risk is attenuated when firms have strong external monitoring mechanisms such as Big Four auditors, cross-listing in the Hong Kong stock exchange, high marketization process and high institutional ownership. Then, some weak evidence supports that internal governance such as internal control plays the same moderating role. In addition, based on the path test, the stock price crash effect of the executive pay bandwagon has a complete tax avoidance intermediary effect and a partial earnings management intermediary effect. Originality/value This study contributes to the executive compensation literature from a psychological perspective on the economic consequences research brought about by the pay bandwagon for China’s listed firms. Moreover, this paper provides a supplement to the literature on factors which is completely different from previous studies that affect the future stock price crash risk.

Power Distance, Political Uncertainty, and Stock Price Crash Risk: International Evidence

2021 ◽  
Author(s):  
Qiaoling Su ◽  
Xunchang Zhang ◽  
Jianming Ye
Keyword(s):  
Stock Price ◽  
Power Distance ◽  
Cultural Dimensions ◽  
Crash Risk ◽  
Corporate Disclosure ◽  
National Elections ◽  
Political Event ◽  
Listed Firms ◽  
Political Events ◽  
The Government

This study tests the effect of unbalanced power distance (PD) (i.e., Hofstede’s cultural dimensions PD index) and individual stock price crash risk. We examine the stock price behavior of listed firms in 37 countries from 2004 to 2016 and use multivariate analyses to document that societal PD is important in explaining firms’ propensity to release accounting information. This propensity suggests a psychological tendency regarding timing management, particularly for bad news. As countries with large PD prefer to keep things under control, the result is fewer unexpected stock price crashes during the long windows between election events. However, because large-PD countries focus their markets on maintaining temporary peace before and during periods of political events (i.e., national elections), crash risk increases after the political event window. Consistent with these predictions, we find that in large-PD countries, companies generally have less incentive to hide negative information and thus generate stock price crashes. This situation is substantially changed during the postpolitical windows, when firms and ways of spreading information are more controlled by the government. Our findings suggest that formal mechanisms alone are insufficient to explain the behaviors of corporate disclosure that are entangled with informal instruments.

Reforms will help clean up China's securities market

2021 ◽  
Keyword(s):  
Insider Trading ◽  
Stock Price ◽  
The United States ◽  
Securities Market ◽  
Foreign Firms ◽  
Financial Fraud ◽  
Content Type ◽  
Listed Firms ◽  
Wide Range ◽  
Political Priority

Significance China's securities market has grown dramatically, but the rules that underpin its functioning have failed to keep pace and have been poorly enforced because regulators and courts lacked resources and the issue was never a political priority. Insider trading, stock price manipulation and other fraud is relatively common. Impacts A wide range of sectors and institutions will need to adjust, including investors, listed firms, traders, law enforcers and courts. Foreign firms investing in China will benefit from better protection from financial fraud. China may send judges abroad to learn from other systems; Europe is a more likely destination than the United States.

Does negative information in MD&A can reduce stock crash risk?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jianmai Liu
Keyword(s):  
Information Asymmetry ◽  
Information Disclosure ◽  
Stock Price ◽  
Negative Information ◽  
Bad News ◽  
Practical Significance ◽  
Crash Risk ◽  
Content Type ◽  
The Impact

Purpose As an important part of the disclosure of listed companies' annual reports, MD&A will disclose some "bad news" about the company. The purpose of this paper is to study whether such "bad news" can reduce information asymmetry and alleviate the risk of stock price crash remains to be seen. Design/methodology/approach Based on the sample of A-share listed companies from 2007 to 2016, the authors examine whether the negative information in MD&A could reduce stock price crash risk. Findings It is found that the negative information in MD&A does not reduce future crash, which indicates that the negative information in MD&A does not alleviate the information asymmetry. Further, it is also found this is due to the low readability of negative information which leads to the negative information not successfully released into the market timely. Only highly readable negative information can alleviate information asymmetry and suppress crash risk. In addition, the authors also find in the companies with more investor surveys negative tone is negatively correlated with crash risk, which means that investor surveys could help investors interpret the negative information in MD&A and alleviate stock price crash risk. Practical implications The practical significance of this article: this paper suggests that investors should carefully identify the quality of negative information in MD&A and pay attention to other quality characteristics besides credibility. This paper suggests that the regulator should pay attention not only to whether to disclose and the amount of disclosure but also to the quality of information disclosure, such as readability, so as to restrict management's strategic behavior in information disclosure. Originality/value First, different from previous studies on the impact of information disclosure on crash risk, this paper directly explores the impact of information in MD&A on stock price crash risk from the perspective of negative information disclosure that management most want to hide. It supplements the literature on the impact of information disclosure on stock price crash risk. Second, this paper studies the interaction between information tone and readability and its impact on the risk of stock price crash. Some studies believe that the credibility of negative news is higher and investors' reaction may be stronger. However, this paper finds that the disclosure of negative information may not be absorbed by the market because of the low readability. Third, this paper finds that investor surveys can help information users to interpret negative information and alleviate the risk of stock price crash, which shows that information disclosure of different channels will complement each other and improve information efficiency. Therefore, it advocates different information disclosure channels which has important practical significance for improving market pricing efficiency and reducing investment decision-making risk.

scholarly journals An investigation on the link between driver demographic characteristics and distracted driving by using the SHRP 2 naturalistic driving data

2020 ◽  
Vol 3 (1) ◽  
pp. 1-16
Author(s):  
Haotian Cao ◽  
Zhenghao Zhang ◽  
Xiaolin Song ◽  
Hong Wang ◽  
Mingjun Li ◽  
...  
Keyword(s):  
Cell Phone ◽  
Large Scale ◽  
Population Attributable Risk ◽  
Demographic Characteristics ◽  
Driving Safety ◽  
Crash Risk ◽  
Lower Percentage ◽  
Content Type ◽  
Driving Experience ◽  
Naturalistic Driving

Purpose The purpose of this paper is to investigate the influence of driver demographic characteristics on the driving safety involving cell phone usages. Design/methodology/approach A total of 1,432 crashes and 19,714 baselines were collected for the Strategic Highway Research Program 2 naturalistic driving research. The authors used a case-control approach to estimate the prevalence and the population attributable risk percentage. The mixed logistic regression model is used to evaluate the correlation between different driver demographic characteristics (age, driving experience or their combination) and the crash risk regarding cell phone engagements, as well as the correlation among the likelihood of the cell phone engagement during the driving, multiple driver demographic characteristics (gender, age and driving experience) and environment conditions. Findings Senior drivers face an extremely high crash risk when distracted by cell phone during driving, but they are not involved in crashes at a large scale. On the contrary, cell phone usages account for a far larger percentage of total crashes for young drivers. Similarly, experienced drivers and experienced-middle-aged drivers seem less likely to be impacted by the cell phone while driving, and cell phone engagements are attributed to a lower percentage of total crashes for them. Furthermore, experienced, senior or male drivers are less likely to engage in cell phone-related secondary tasks while driving. Originality/value The results provide support to guide countermeasures and vehicle design.

Auditors’ response to readability of financial statement notes

2020 ◽  
Vol 28 (3) ◽  
pp. 463-480
Author(s):  
Mahdi Salehi ◽  
Mahmoud Lari Dasht Bayaz ◽  
Shaban Mohammadi ◽  
Mohammad Seddigh Adibian ◽  
Seyed Hamed Fahimifard
Keyword(s):  
Stock Exchange ◽  
Financial Statements ◽  
Audit Fees ◽  
Financial Statement ◽  
Audit Report ◽  
Financial Reports ◽  
Statistical Population ◽  
Content Type ◽  
Listed Firms ◽  
Going Concern Opinion

PurposeThe main objective of the present study is to assess the potential impact of readability of financial statement notes on the auditor's report lag, audit fees and going concern opinion (GCO).Design/methodology/approachThe statistical population of this study includes all listed firms on the Tehran Stock Exchange (TSE) for the period of 2012–2017. The systematic elimination method is used for sampling and multiple regression and EViews software are used for testing the hypothesis models.FindingsThe obtained results show that there is a significant and positive relationship between audit report lags and readability of financial statements. Moreover, it is also revealed that readability of financial statements is positively associated with audit fees. Furthermore, the findings suggest a negative correlation between readability indexes and issuing GCOs, denoting hard-to-read statements is considered as a risk factor by auditors. Finally, the observations of our robustness tests suggest that the association between audit report lag and readability of financial statements is robust.Originality/valueThis is the first conducted investigation concerning auditor's response to the readability of financial statement notes in TSE. The outcome of current paper may pave the way for revising and developing Iranian accounting standards in order to give a fairer and clearer picture of financial reports.

Corporate dispersion and tax avoidance

2019 ◽  
Vol 13 (3) ◽  
pp. 706-732 ◽  
Author(s):  
Kun Su ◽  
Bin Li ◽  
Chen Ma
Keyword(s):  
Internal Control ◽  
Chief Executive Officers ◽  
Tax Avoidance ◽  
Chief Executive ◽  
Corporate Tax ◽  
Content Type ◽  
Listed Firms ◽  
Corporate Governance Mechanisms ◽  
Executive Officers ◽  
The Impact

Purpose The purpose of this paper is to investigate the effects of corporate dispersion on tax avoidance from geographical and institutional dispersion perspectives by using evidence from China. Design/methodology/approach Using a panel data of Chinese listed firms during 2003-2015, this paper estimates with correlation analysis and multiple regression analysis. Findings Both geographical and institutional dispersion are negatively associated with the degree of corporate tax avoidance. Furthermore, corporate governance mechanisms and female chief executive officers can mitigate the negative relation between corporate dispersion and tax avoidance. The results also indicate that ineffective internal control is one of the channels through which corporate dispersion reduces tax avoidance. Originality/value This is the first paper about the impact of firm dispersion on the degree of tax avoidance, complementing the research content of diversification and corporate decision-making.

Stock price crash risk and internal control weakness: presence vs. disclosure effect

2017 ◽  
Vol 59 (2) ◽  
pp. 1197-1233 ◽  
Author(s):  
Jeong‐Bon Kim ◽  
Ira Yeung ◽  
Jie Zhou
Keyword(s):  
Internal Control ◽  
Stock Price ◽  
Crash Risk
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