The Relationship between Audit Fees and Stock Price Crash Risk

Document Type: Original Article


1 Assistant Prof., Department of Accounting, Fasa Branch, Islamic Azad University, Fasa, Iran.

2 Ph.D. Candidate, Department of Accounting, Bandar Abbas Branch, Islamic Azad University, Bandar Abbas, Iran.



The purpose of this study is to examine the relationship between audit fees and stock price crash risk. The study period is from 2013 to 2017 and the selected sample consists of 110 companies listed on Tehran Stock Exchange (TSE). To test the hypotheses of the research, the ordinary least squares regression is used. The findings show that there is a positive and significant relationship between audit fees and stock price crash risk. In other words, for companies with higher audit fees, there is a greater risk of falling stock prices.


Amani, A., and Davani, G. (2009). Service, Fees and auditor’s ranking, World Economy, No. 1998. (In Persian).

Bedard, J.C., and Johnstone, K.M. (2004). Earnings manipulation risk, corporate governance risk, and auditors’ planning and pricing decisions, The Accounting Review, 79 (2): 277-304.

Botosan, C., and Plumlee, M. (2002). A re-examination of disclosure level and the expected cost of equity capital, Journal of Accounting Research, 40 (1): 21-40.

Callen, J.L., and Fang, X. (2011). Institutional investors and crash risk: Monitoring or expropriation?, Available At URL: Http://Www.Ssrn.Com.

Chen, J., Hong, H., and Stein, J. (2001). Forecasting crashes: Trading volume, past returns, and conditional skewness in Stock Prices, Journal of Financial Economics, 61: 345–381.

Diamond, D., and Verrecchia, R. (1991). Disclosure, liquidity and cost of capital, Journal of Finance, 46 (4): 1325-1359.

Dimson, E. (1979). Risk measurement when shares are subject to infrequent trading, Journal of Financial Economics. 7: 197-226

Ebrahimi, K., Peyvandi, M., and Fakharmanesh, M. (2015). Studying the effect of company ownership structure on audit fee and opinion of independent auditors of companies, Financial Accounting Journal, 6 (24): 59-78. (In Persian)

Fallahzadeh Abarghuyi, A., Taftian, A., and Heyrani, F. (2017). An investigation of the interrelationship between discretionary disclosures of information with concurrency and stock price crash risk Using concurrent equation system, Financial Accounting, 9 (36): 53-75. (In Persian).

Fama, E., and French, K. R. (1993). Common risk factors in the returns on stocks and bonds, Journal of Financial Economics. 33: 3–56.

Hackenbrack, K., Jenkins, N., and Pevzner, M. (2011). Relevant but delayed information in negotiated audit Fees, Auditing: A Journal of Practice and Theory, 33 (4): 95-117.

Healy, P., and Palepu, C. (2001). Information asymmetry, corporate disclosure and capital markets, Journal of Accounting and Economics, 31: 405-440.

Heflin, F., K. Shaw, and Wild, J. (2005). Disclosure quality and market liquidity: the effect of depth quotes and order sizes, Contemporary Accounting Research, 22 (4): 829- 865.

Hong, H., and Stein, J. (2003). Differences of opinion, short-sales constraints, and market crashes, The Review of Financial and Studies, 16 (2): 487-525.

Hribar, P., Kravet, T., and Wilson, R. (2010). A new measure of accounting quality, Working Paper. The University of Iowa.

Hutton, A., Marcus, A.J., and Tehranian, H. (2009). Opaque financial reports, R2, and crash risk, Journal of Financial Economics, 94: 67-86.

Jin, L. and Myers, S.C. (2006). R2 around the world: new theory and new tests, Journal of Financial Economics, 79: 257-292.

Khan, M., and Watts, R. L. (2009). Estimation and empirical properties of a firm-Year measure of accounting conservatism, Journal of Accounting and Economics, 48: 150- 132.

Kim, J., Li, Y., and Zhang, L. (2010). Corporate tax avoidance and stock price crash risk: firm-level analysis, Journal of Financial Economics, 100 (3): 639- 662.

Kim, O., and Verrecchia, R. (1994). Market liquidity and volume around earnings announcements, Journal of Accounting and Economics, 17: 41-67.

Kothari, S.P, Shu, S., and Wysocki, P. (2009). Do managers withhold bad news?, Journal of Accounting Research, 47 (1): 241-276.

Lambert, R., Leuz, C, and Verrecchia, R. (2007). Accounting information, disclosure, and the cost of capital, Journal of Accounting Research, 45 (2): 385-420.

Lang, M., and Lundholm, R. (2000). Voluntary disclosure and equity offerings: reducing information asymmetry or hyping the stock?, Contemporary Accounting Research, 17 (4): 623-662.

Mitra, S., Bikki, J., and Al-Hayale, T. (2017). The effect of managerial stock ownership on the relationship between material control weaknesses and audit fees, Review of Accounting and Finance, 16 (2): 239-259.

O’Keefe, T., Simunic, D. and Stein, M. (1994). The production of audit services: evidence from a major public accounting firm, Journal of Accounting Research, 32 (2): 241-261.

Picconi, M., and Reynolds, J.K. (2010). Do auditors know more than the market?, Working paper, College of William and Mary.

Rasekhi, M., and Arad, H. (2017). Investigating the relationship between auditor's fees and delays in submitting audit report in Tehran Stock Exchange, New Research in Management and Accounting, 20: 169- 185. (In Persian).

Razmian, Z., Fallah Shams, M., Khodaei Valahzaghard, M., Hasani, M. Forecasting Crash risk using Business Strategy, Equity Overvaluation and Conditional Skewness in Stock Price, International Journal of Finance and Managerial Accounting, 2020; 4(16): 13-25.

Riahi-Belkaoui, A. (2003). Intellectual capital and firm performance of US multinational firms, Journal of Intellectual Capital, 4: 215-226.

Sukrisno, A. (2012). Auditing (Petunjuk Praktis Pemeriksaan Akuntan oleh Akuntan Publik). Edisi Keempat. Salemba Empat: Jakarta.

Tulus Suryanto (2014). Determinants of audit fee based on client attribute, auditor attribute, and engagement attribute to control risks and prevent fraud: A study on public accounting firms in Sumatra-Indonesia, International Journal of Economics and Business Administration, 2 (3): 27-39