Abstract

The manipulative tax avoidance of managers by using the information asymmetry accumulates bad news consistently in firm, and that may crash the stock price by disclosing the accumulated bad news all at once. In this situation, the industry specialist auditors that provide the high quality audit service as the role of effective manager monitoring system to relieve the information asymmetry through the reliability assessment of the financial statements. Therefore, this research was carried out to accomplish the following three research goals. (1) I analyzed whether the firm with high level of tax avoidance was exposed to the risk of crash in future stock price by accumulating the bad news because of such high level of tax avoidance. (2) I analyzed whether the firm those external auditor are industry specialist has lower risk of crash. (3) the empirical analysis was examined if the industry specialist auditors relieve a positive relation between tax avoidance and stock price crash risk. Research samples are 1,929 firm-years that are listed on KRX from 2006 to 2014. The firm level of stock price crash risk was measured by using 2 variables, NCSKEWt＋1 and DUVOLt＋1. Tax avoidance was measured by using 4 variables, BTD, DD_BTD, CashETR and 5LCashETR. The industry specialization auditor was measured by 3 variables, MS, PS and ISP that was reflected both PS and MS. The results of empirical tests are as follows. (1) With respect to NCSKEWt＋1 and DUVOLt＋1, all tax avoidance variables excluding 5LCashETR have significant positive influence. This results may mean that accumulation of bad news by the tax avoidance increases the stock price crash risk. (2) all the variables of MS, PS, ISP have non-significant effect on all kind of stock price crash risk variables. It may require additional tests to explain this result, but I guess that the firm that are audited by industry specialist auditor would not enough to control the stock price crash risk. (3) With respect to NCSKEWt＋1 and DUVOLt＋1, the interaction between BTD, DD_BTD, CashETR and all the kind of industry specialization auditor variables have significant and negative effect on that. This results may be explained as follows. The industry specialist auditors can relieve information asymmetry to monitor manager effectively, and that may decrease the stock price crash risk by tax avoidance.

Keywords

• tax avoidance
• industry specialist auditors
• stock price crash risk

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