Does Board Stability Affect Auditors’ Risk Decision?Evidence from Private Listed Companies

Using a sample of Chinese A-share private listed companies from 2007 to 2019,this paper investigates how auditors look upon the board stability of private listed companies and what kind of countermeasures they take.The result shows that the lower the board stability,the greater probability of modified audit opinions.From the perspective of the underlying mechanism,the auditors believe that the company with lower board stability has higher future operational risk and inefficient internal control,which makes that they are more likely to issue modified audit opinions.Further,we find that the relationship between board stability and auditor’s risk decision is more pronounced in firms with chairman change,change of representative of major shareholders,lower board meetings frequency and smaller or larger board size based on internal perspectives and in firms located in regions of lower marketization based on external perspectives.