Abstract: Based on the incidents of administrative penalties imposed by the China Securities Regulatory Commission on auditors and CPA firms from 2001 to 2018, this article uses event research and regression analysis to study whether administrative penalties affect the stock prices of audited customers other than the company involved and how they affect it. The study found that: when the auditor (and CPA firm) punishment incident occurred, the capital market made significant negative reactions to the audit clients of the penalized auditors, the audit clients of the same group of colleagues, and the audit clients of colleagues in the same CPA firm.This paper even observed the negative market reactions of other companies in the industry involved in the case, which more fully confirms the market spillover effect of auditor penalties. The study also found that: the market spillover effect caused by the punishment decays as the connection with the penalized auditor decreases, which has the pattern of difference sequence; the degree of the market spillover effect is affected by the punishment intensity of CPA firm and the nature of the client's property rights. This study has brought warnings to the practice of auditors and the selection of auditors, and has enlightening significance for auditor supervision departments and the development of the CPA industry.

Key words: auditor penalty, market spillover effect, audit reputation, cumulative abnormal return