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Auditor-provided tax services and stock price crash risk

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  • Ahsan Habib
  • Mostafa Monzur Hasan

Abstract

This paper examines whether auditor-provided tax services affect stock price crash risk: an important consideration for stock investors. Provision of tax services by incumbent auditors could accentuate or attenuate crash risk depending on whether such services give rise to knowledge spillover or impair auditor independence. The study investigates two channels through which tax services might affect crash risk: earnings management in tax expenses and tax avoidance. Also examined is whether the association between tax services and crash risk is moderated by the particular business strategy that organizations pursue. A two-stage model is used to control for the potential endogeneity inherent in the selection of auditors for tax services. Empirical findings reveal that auditor-provided tax services attenuate crash risk by constraining both earnings management in tax expenses and tax avoidance. Further evidence shows that auditor-provided tax services reduce crash risk for firms following innovator business strategies. Taken together, empirical findings reported in this study support knowledge spillover benefits, that is, insights gained from tax services can enhance audit effectiveness.

Suggested Citation

  • Ahsan Habib & Mostafa Monzur Hasan, 2016. "Auditor-provided tax services and stock price crash risk," Accounting and Business Research, Taylor & Francis Journals, vol. 46(1), pages 51-82, January.
    • Handle: RePEc:taf:acctbr:v:46:y:2016:i:1:p:51-82
    DOI: 10.1080/00014788.2015.1035222
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    References listed on IDEAS

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    1. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Minghui Yang & Yan Wang & Lu Bai & Petra Maresova, 2023. "Corporate social responsibility, family involvement, and stock price crash risk," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(3), pages 1204-1225, May.
    2. Ahsan Habib & Mostafa Monzur Hasan & Haiyan Jiang, 2018. "Stock price crash risk: review of the empirical literature," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(S1), pages 211-251, November.
    3. Lee, Sang Mook & Park, Jong Chool & Song, Hakjoon, 2025. "Reprint of: The capital market consequence of sustained abnormal Audit fees: Evidence from stock price crash risk," The British Accounting Review, Elsevier, vol. 57(1).
    4. Ephraim Kwashie Thompson, 2025. "ESG and stock price crash risk mitigation: evidence from Korea," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-13, December.
    5. Min Jung Kang & Y. Han (Andy) Kim & Qunfeng Liao, 2020. "Do bankers on the board reduce crash risk?," European Financial Management, European Financial Management Association, vol. 26(3), pages 684-723, June.
    6. Chen, Jing & Liu, Xinghe & Ou, Fenghao & Lu, Meiting & Wang, Peipei, 2023. "Green lending and stock price crash risk: Evidence from the green credit reform in China," Journal of International Money and Finance, Elsevier, vol. 130(C).
    7. Muhammad Hamza Khan & Muhammad Rizwan *, 2021. "The Impact of Stock Price Crash Risk on the Cost of Capital: Empirical Study from China," Journal of Economic Impact, Science Impact Publishers, vol. 3(2), pages 88-97.
    8. Kong, Dongmin & Shi, Lu & Zhang, Fan, 2021. "Explain or conceal? Causal language intensity in annual report and stock price crash risk," Economic Modelling, Elsevier, vol. 94(C), pages 715-725.
    9. Habib, Ahsan & Hasan, Mostafa Monzur, 2017. "Managerial ability, investment efficiency and stock price crash risk," Research in International Business and Finance, Elsevier, vol. 42(C), pages 262-274.
    10. Chung, Chune Young & Thi Ngoc Dung, Pham & Liu, Chang, 2024. "Institutional blockholder monitoring and stock price crash risk," The Quarterly Review of Economics and Finance, Elsevier, vol. 98(C).
    11. Guo, Kun & Li, Yichong & Zhang, Yunhan & Chen, Yingtong & Ma, Yanran, 2024. "Cross-country risk spillovers of ESG stock indices: Dynamic patterns and the role of climate transition risks," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    12. Xiaomei Han & Wei Luo & Liansheng Wu & Wei Zhou, 2023. "Audit Effort and Stock Price Crash Risk," Abacus, Accounting Foundation, University of Sydney, vol. 59(1), pages 230-257, March.
    13. Bing Wang & Kung‐Cheng Ho & Xinyu Liu & Yan Gu, 2022. "Industry cash flow volatility and stock price crash risk," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 356-371, March.
    14. Fan, Yunqi & Xu, Zijing, 2022. "Audit firm's Confucianism and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 79(C).
    15. Rashid Zaman & Stephen Bahadar & Haroon Mahmood, 2021. "Corporate irresponsibility and stock price crash risk," International Review of Finance, International Review of Finance Ltd., vol. 21(3), pages 786-820, September.

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