Investor Sentiment and Stock Price– Role of Audit Quality

Proceedings of The 15th International Conference on Modern Research in Management, Economics and Accounting

Year: 2023



Investor Sentiment and Stock Price– Role of Audit Quality

Su-Ping Liu, Ling Liu, and Md Jahidur Rahman




This thesis investigates the impact of investor sentiment on stock price and the moderate effect of audit quality in the association between investor sentiment and stock price. The main variables of interest are investor sentiment proxies and audit quality, proxied by audit fees, audit type and audit report type. The dependent variable is the closing stock price at the end of the fiscal year. I adopt regression analysis to examine the coefficients of investor sentiment on the stock price and the coefficient of the interaction effect of investor and audit quality on the stock price. Using the sample of 51,216 Chinese-listed firms for the period 1999-2021, I find that stock price will increase when investors are in high sentimentality, consistent with hypothesis 1. I also find that audit quality loosens the tie with the sentiment and stock price when audit fees are used as the proxy for audit quality. My contributions to the literature are in theoretical and practical ways. I add to evidence of the moderating effect of audit quality on the relationship between investor sentiment and stock price. This thesis also provides a practical implication. Audit fees, as the proxy of audit quality, reduce investors’ sentiment toward price volatility. The market participants then could make their investment decisions by exploiting audit fees of listed companies in the China stock markets. However, I do not find a significant result when using audit type and report type to proxy audit quality in our tests.

keywords: Stock price, Investor sentiment, Audit quality