Audit partner quality and stock price crash risk : evidence from an emerging market with dual-signature audits

Abstract

<p><br></p><p>Purpose<br></p><p>This study aims to examine the impact of audit partners’ quality on stock price crash risk in Iran, with particular focus on how agency costs, state ownership and audit firm size moderate this relationship. Iran’s unique dual-signature audit system and the absence of Big 4 firms provide an exceptional setting to explore the role of individual audit partners in an emerging market. The authors hypothesize that higher audit partner quality reduces crash risk, with lead partners having a stronger influence than review partners due to their primary role in decision-making.</p><p>Design/methodology/approach</p><p>Using 2,898 firm-year observations from Tehran Stock Exchange-listed companies (2011–2024), audit partner quality is proxied by audit failure rates for lead and review partners. Panel regressions with fixed effects and interaction terms assess the association between partner quality and crash risk, accounting for unobserved heterogeneity.</p><p>Findings</p><p>Results show that higher-quality partners significantly reduce crash risk, with lead partners exerting stronger influence than review partners. The effect is more pronounced in firms with higher agency costs, lower state ownership concentration and audits conducted by larger domestic firms. The findings remain consistent when alternative proxies of audit quality – discretionary accruals and audit report modifications – are used. In addition, endogeneity controlled by firm fixed effects and two-stage least squares supports the main findings.</p><p>Originality/value</p><p>To the best of the authors’ knowledge, this study is the first to provide evidence from Iran regarding the role of individual audit partner quality in mitigating stock price crash risk. The dual-signature audit system and the absence of Big 4 firms make Iran a unique setting for studying partner-level audit quality. The study contributes to the global discussion on individual auditor accountability and financial market stability, particularly in emerging economies where institutional contexts differ significantly from those in developed markets.</p>