Impact of Audit Quality on Stock Price Crash Risk: Evidence from Pakistan Stock Exchange

Authors

  • Fatima Sultana Lahore Business School, The University of Lahore, Sargodha Campus, Sargodha, Pakistan
  • Muhammad Aslam Lahore School of Accountancy and Finance, The University of Lahore, Sargodha Campus, Pakistan
  • Ammara Sarwar Lahore Business School, The University of Lahore, Sargodha Campus, Sargodha, Pakistan
  • Amjad Iqbal Lahore Business School, The University of Lahore, Sargodha Campus, Sargodha, Pakistan

DOI:

https://doi.org/10.52223/jei4032202

Keywords:

Audit quality, Stock price crash risk, Fixed effect model, Pakistan stock exchange

Abstract

Stock price crash risk is an unfavourable event in business that may decrease the shareholder’s wealth and hurt stability and capital market growth. This study investigates the impact of audit quality measured by auditor industry specialization (AIS), audit tenure (AT), audit committee independence (ACI), audit firm size(AFS)) on stock value crash (measured by down-to-up unpredictability) for a sample of 70 non-financial firms listed in Pakistan Stock Exchange during from 2009 to 2018. Efficient governance enriches financial and operational directness, which cuts down the stock value crashes in rotation. Facing crash risk difficulties, traders impart more funds to stocks of well-regime organizations. The fixed effect model results show that AIS and ACI have a negative and significant impact on crash risk, while there is a positive impact of AFS on stock price crash risk. Moreover, it concludes that it has an insignificant impact on stock price crash risk in Pakistan. It is concluded that effective audit quality lessens the difficulty of data abnormality and improves stock price crash risk. This study has importance for investors to help them identify the most liquid stock and will enable them to decide which stocks to acquire and which to dispose of. This study will also be helpful for academics and scholars to bridge this gap on the influence of audit quality practices on the economic consequences of Pakistan. It will be useful for future research as well as because it will become part of the empirical literature on the economic consequence of stock markets.

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Published

2022-10-15

How to Cite

Sultana, F., Aslam, M., Sarwar, A. and Iqbal, A. (2022) “Impact of Audit Quality on Stock Price Crash Risk: Evidence from Pakistan Stock Exchange”, Journal of Economic Impact, 4(3), pp. 161–169. doi: 10.52223/jei4032202.

Issue

Section

Research Articles
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