Accounting information comparability and stock price crash risk: The moderator role of audit quality (Evidence from peers’ firms)

Document Type : Original Article

Authors
Abbas Ali Daryaei 1
mehdi maranjory 2
Yasin Fattahi 3
1 Assistant Professor in Accounting, Imam Khomeini International University, Qazvin, Iran
2 Assistant Professor in Accounting, Chalus branch, Islamic Azad University, Chalus, Iran
3 M.A in Accounting, Imam Khomeini International University, Qazvin, Iran
Abstract
Literature shows that increasing the quality of audit financial statements information increases the Accounting information comparability between peers’ firms. On the other hand, increasing comparability can also reduce the stock price crash risk. Using a panel data regression model, we explore the moderator role of audit quality on the relationship between the comparability of accounting information and stock price crash risk of 137 firms, for the period 2009 to 2018. The results showed that the earnings management as proxy of audit quality mitigates the severity of the negative and significant relationship between the comparability of accounting information and stock price crash risk. This can be due to upward earnings management. This conclusion is robust to the use of different control variables and econometric models. Present study contributes by providing theoretical and empirical evidence on auditing and finance literature.
Keywords: Accounting information comparability, audit quality, earnings management and stock price crash risk
Keywords
Accounting information comparability
audit quality
earnings management and stock price crash risk
  • اخگر، محمد امید و خانقلی، مولود. (۱۳۹۵). بررسی رابطه نوع حسابرس و قابلیت مقایسه اقلام سود و زیان، فصلنامه حسابداری مالی، ۸(۳۱)،۱۰۰-۷۴.
  • پیری، پرویز؛ حیدری، حسن و سمیرا، رئوف. (1392). رابطه بین ریسک سیستماتیک و ارزش افزوده اقتصادی در ایران، فصلنامه پژوهش‌ها و سیاست‌های اقتصادی، 21(66)، 169-186.
  • آقایی، محمد علی و حسن زاده، بهروز. (1397). مقایسه‌‏پذیری حسابداری و تاثیر آن بر کارایی سرمایه‏‌گذاری، مجله علمی-پژوهشی دانش حسابداری، 9(2): 7-34.
  • حاجیها، زهره و چناری بوکت، حسن. (1397). قابلیت مقایسه صورت‌های مالی و خطر سقوط مورد انتظار قیمت سهام، فصلنامه علمی‌ـ‌پژوهشی دانش مالی تحلیل اوراق بهادار، 11(39): 37-48.
  • رحمانی، علی و قشقایی، فاطمه. (1396). رابطه قابلیت مقایسه حسابداری با مدیریت سود واقعی و تعهدی، بررسی‏‌های حسابداری و حسابرسی، 24(4): 527-550.
  • رهنمای رودپشتی؛ فریدون و وکیلی فرد، حمیدرضا و محسنی، عبدالرضا. (1394). سبک حسابرس و قابلیت مقایسه صورت‌های مالی، فصلنامه علمی‌ـ‌پژوهشی حسابداری مدیریت، 8(25): 29-47.
  • ظفری، سبحان؛ فروغی، داریوش و کیانی، غلامحسین. (1398). تاثیر قابلیت مقایسه و ثبات رویه حسابداری بر عدم تقارن اطلاعاتی: رویکرد متن‌کاوی، حسابداری مدیریت، 12(41)، 133-150.
  • فروغی، داریوش و قاسم­زاد، پیمان. (1395). تأثیر قابلیت مقایسۀ صورت­های مالی بر همزمانی قیمت سهام،پژوهش­های حسابداری مالی، 8(1)، 39- 54.
  • کیا، علی و صفری‌گرایلی، مهدی. (1396). قابلیت مقایسه صورت‌های مالی، مدیریت سود واقی و تعهدی، مجله علمی‌ـ‌پژوهشی دانش حسابداری مالی، 4(2)، 115-137.
  • مهرورز، فاطمه و مرفوع، محمد. (1395). رابطه بین قابلیت مقایسه صورت‌های مالی با آگاهی بخشی قیمت سهام در خصوص سودهای آتی، مطالعات تجربی حسابداری مالی، 13(49)، 89-110.
  • Ali, M. J. (2005). A Synthesis of Empirical Research on International Accounting Harmonization and Compliance with Financial Reporting Standards, Journal of Accounting Literature, 24: 1–52.
  • Baker, C.R., Barbu, E.M. (2007). Trends in research on international accounting harmonization, the international Journal of Accounting, 42(3): 272-304.
  • Ball, R. (2006). International financial reporting standards (IFRS): Pros and cons for investors, Accounting and Business Research, 36(1), 5-27.
  • Baltagi, H., (1995). Econometric Analysis of Panel Data. John Wiley, NewYork.
  • Barth, M. E., Landsman, W. R., Lang, M., & Williams, C. (2012). Are IFRS-based and US GAAP-based accounting amounts comparable? Journal of Accounting and Economics, 54(1): 68–93.
  • Barth, M., Landsman, W., Lang, M., Williams, C. (2013). Effects on comparability and capital market benefits of voluntary adoption of IFRS by US firms: Insights from voluntary adoption of IFRS by non-US firms, working paper, Stanford University.
  • Beatty, Anne, Joseph Weber & J. Scott (2007). The Role of Accounting Quality in Reducing Investment Inefficiency in the Presence of Private Information and Direct Monitoring. Working Paper, the Ohio State University.
  • Biddle, G. & G. Hilary (2006). Accounting Quality and Firm-Level Capital Investment. The Accounting Review, 81(5), 963-982.
  • Bleck, A., Liu, X. (2007). Market transparency and the accounting regime, Journal of Accounting Research, 45(2), 229-256.
  • Bradshaw, M. T., Hutton, A. P., Marcus, A. J., Tehranian, H. (2010). Opacity, crash risk and option smirk curves, working paper, Boston College.
  • Cascino, S., Gassen, J. (2010). Mandatory IFRS adoption and accounting comparability, London School of Economics, United Kingdom, Humboldt-Universität zu Berlin, Germany.
  • Chambers, D., and Payne, J. (2008). Audit Quality and Accrual Reliability: Evidence from the Pre-and Post-Sarbanes-Oxley Periods, Working Paper, Available at SSRN: http://ssrn. Com/ abstract =1136787.
  • Chen, C.-W., Collins, D. W., Kravet, T. D., & Mergenthaler, R. D. (2016). Financial Statement Comparability and the Efficiency of Acquisition Decisions. Contemporary Accounting Research, 35(1), 164–202.
  • Chen, C.-W., W. Collins, D., Kravet, T., &D. Mergenthaler, R. (2013). Financial statement comparability and the efficiency of acquisition decisions, Working Paper, University of Iowa and University of Texas at Dallas, Available at: http://ssrn.com/abstract=2169082.
  • Chen, J.; Hong, H.; Stein, J. (2002). Forecasting Crashes: Trading Volume, Past Returns, and Conditional Skewness in Stock Prices, Journal of Financial Economics, 61, 345-381.
  • Choi, J.-H., Choi, S., Myers, L. A., & Ziebart, D. (2019). Financial Statement Comparability and the Informativeness of Stock Prices about Future Earnings, Contemporary Accounting Research, 42, 638–670.
  • Das, S. & Pandit, SH. (2010). Audit Quality, Life-Cycle Stage and the management earnings forecasts in IPO prospectuses, Journal of Business Finance & Accounting, (30), 125-167.
  • De Franco, G., Kothari, S., & Verdi, R. (2011). The benefits of financial statement comparability, Journal of Accounting Research, 49, 895–931.
  • DeFond, M., Hu, X., Hung, M., & Li, S. (2011). The impact of mandatory IFRS adoption on foreign mutual fund ownership: the role of comparability, Journal of Accounting and Economics, 51, 240–258.
  • Diamond, D. W. (1985). Optimal release of information by firms, the journal of finance, 40(4), 1071–1094.
  • Faff, R. W., Brooks. R. D. H. (1999). New Evidence on the Impact of Financial Leverage on Beta Risk, School of Economics and Finance Royal Melbourne Institute of Technology.
  • Fang, X., Li, Y., Xin, B and Zhang, W. (2012). Accounting Comparability and Bank Loan Contracting. Rotman School of Management, Working Paper No. 2138202, CCCA Annual Conference 2013. Available at SSRN: http://ssrn.com
  • Financial Accounting Standards Board (FASB). 2010. Conceptual Framework for Financial Reporting, Statement of Financial Accounting Concepts (SFAC) No. 8.
  • Financial Accounting Standards Board, 2010. Statement of Financial Accounting Concepts No. 8. Available at: http://www.fasb.org/jsp/FASB/Page/PreCodSectionPage&cid=1176156317989.
  • French, K.R., Roll, R. (1986). Stock Return Variances: The Arrival of Information and the Reaction of Traders, Journal of Financial Economics, 17: 5-26.
  • Healy, P.M., and Wahlen, J.M. (1999). A Review of the Earnings Management Literature and Its Implications for Standard Setting, Accounting Horizons, 13(4), 365-383.
  • Hong, H. and Stein, J. C. (2003). Differences of opinion, Short-Sales Constraints, and Market Crashes, The Review of Financial Studies, 16, 487-525.
  • Horton, J., Serafeim, G., & Serafeim, I. (2013). Does mandatory IFRS adoption improve the information environment? Contemporary Accounting Research, 30(1): 388-423.
  • Hutton, A. P., Marcus, A. J., Tehranian, H. (2009). Opaque financial reports, R2, and crash risk, Journal of Financial Economics, 94(1), 67-86.
  • Jensen, M. G. and W. Meckling. (1976). Theory of the firm: managerial behavior, agency costs, and owner ship structure, Journal of Financial Economics, 3(4): 305-360.
  • Jin, L., Myers, S. (2006). R2 around the world: New theory and new tests, Journal of Financial Economics, 79(2), 257-292.
  • Karamanou, I., and Vafeas, N. (2005).The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical Analysis, Journal of Accounting Research, 43, 453-486.
  • Kim, J. B., Li, L., Lu, L. Y., Yu, Y. (2016). Financial statement comparability and expected crash risk, Journal of Accounting and Economics, 61(2-3), 294-312.
  • Kim, S., Kraft, P., Ryan, S. (2013). Financial statement comparability and credit risk, Review of Accounting Studies, 18(3), 783-823.
  • Kim, S., P. Kraft, and S. Ryan. (2015). Financial statement comparability and credit risk, Review of Accounting Studies, 18(3): 783–823.
  • Larcker, D.F. and Richardson, S.A., (2004), Fees paid to audit firms, accrual choices and corporate governance, Journal of Accounting Research, 42(3), 625–658.
  • Li, W. & Cai, G. (2016). Religion and stock price crash risk: Evidence from China, China Journal of Accounting Research, 9(3), 235–250.
  • Lintner, B. J. (1965). Valuation of risky assets and the selection of risky investments in stock portfolios and capital budgets, Review of Economics and Statistics, 47, 13-37.
  • Lobo, G. J., Neel, M., & Rhodes, A. (2018). Accounting comparability and relative performance evaluation in CEO compensation, Review of Accounting Studies, 23(3), 1137–1176.
  • Markowitz, H.M. (1952). Portfolio selection, Journal of Finance, 7, 77–91.
  • Nam, J. (2016). Financial reporting comparability and relative performance evaluation, Working Paper.
  • Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk, Journal of Finance, 19, 425–442.
  • Sohn, B. C. (2016). The effect of accounting comparability on the accrual-based and real earnings management, Journal of Accounting and Public Policy, 35(5), 513–539.
  • Tay, J. S. W., & Parker, R. H. (1990). Measuring international harmonization and standardization, Abacus, 26(1), 71−88.
  • Van der TAS, L. G. (1988). Measuring Harmonization of Financial Reporting Practice, Accounting and Business Research, 18: 157–69.
  • Van der TAS, L. G. (1992). Measuring International Harmonization and Standardization: A Comment, Abacus, 28: 211–16.
  • Yip, R. W. Y., and D. Young. (2012). Does mandatory IFRS adoption improve information comparability? The Accounting Review, 87 (5): 1767–89.