Abstract: As one of the corporate external governance mechanisms, media can reduce the information asymmetry as well as affect all types of information users′ risk perception through collecting, processing and diffusing information. As a provider of information attestation services in capital market, auditors′ judgments of corporate risk are influenced by negative media coverage. Based on transformation of auditors′ organization and using the data from the Chinese listed companies in 2009-2015, the study examines the effects of negative media coverage on audit contract stability. Research finds that negative coverage time positively correlated with auditor changes and the relationship after the transformation is more significant than before the transformation; this only occurs in the region with a better legal environment and in the company with a bad internal control. These results mean that the reputation mechanism which is based on market competition is not yet mature, while the improvement of legal institution is an important mechanism of media governance and the supervision role of media is of significant importance to the healthy development of capital market.

Key words: negative coverage, audit contract stability, legal liability, transformation of auditors′ organization