716
Views
8
CrossRef citations to date
0
Altmetric
Articles

Can audit effort (hours) reduce a firm’s cost of capital? Evidence from South Korea

& ORCID Icon

References

  • Abbott, L. J., Parker, S., & Peters, G. F. (2006). Earnings management, litigation risk, and asymmetric audit fee responses. Auditing: A Journal of Practice & Theory, 25(1), 85–98. https://doi.org/10.2308/aud.2006.25.1.85
  • Ashbaugh-Skaife, H., Collins, D. W., & LaFond, R. (2006). The effects of corporate governance on firms’ credit ratings. Journal of Accounting and Economics, 42(1-2), 203–243. https://doi.org/10.1016/j.jacceco.2006.02.003
  • Asthana, S., Balsam, S., & Kim, S. (2009, July 19). The effect of Enron, Andersen, and Sarbanes-Oxley on the US market for audit services. Accounting Research Journal.
  • Basu, S., Hwang, L. S., & Jan, C. L. (2001). Differences in conservatism between big eight and non-big eight auditors. SSRN 2428836.
  • Becker, C. L., DeFond, M. L., Jiambalvo, J., & Subramanyam, K. R. (1998). The effect of audit quality on earnings management. Contemporary Accounting Research, 15(1), 1–24. https://doi.org/10.1111/j.1911-3846.1998.tb00547.x
  • Behn, B. K., Choi, J. H., & Kang, T. (2008). Audit quality and properties of analyst earnings forecasts. The Accounting Review, 83(2), 327–349. https://doi.org/10.2308/accr.2008.83.2.327
  • Bharath, S. T., Sunder, J., & Sunder, S. V. (2008). Accounting quality and debt contracting. The Accounting Review, 83(1), 1–28. https://doi.org/10.2308/accr.2008.83.1.1
  • Bhojraj, S., & Sengupta, P. (2003). Effect of corporate governance on bond ratings and yields: The role of institutional investors and outside directors. The Journal of Business, 76(3), 455–475. https://doi.org/10.1086/344114
  • Black, F., & Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81(3), 637–654. https://doi.org/10.1086/260062
  • Bockus, K., & Gigler, F. (1998). A theory of auditor resignation. Journal of Accounting Research, 36(2), 191–208. https://doi.org/10.2307/2491474
  • Boot, A. W., Milbourn, T. T., & Schmeits, A. (2006). Credit ratings as coordination mechanisms. The Review of Financial Studies, 19(1), 81–118. https://doi.org/10.1093/rfs/hhj009
  • Cahan, S. F., Godfrey, J. M., Hamilton, J., & Jeter, D. C. (2008). Auditor specialization, auditor dominance, and audit fees: The role of investment opportunities. The Accounting Review, 83(6), 1393–1423. https://doi.org/10.2308/accr.2008.83.6.1393
  • Caramanis, C., & Lennox, C. (2008). Audit effort and earnings management. Journal of Accounting and Economics, 45(1), 116–138. https://doi.org/10.1016/j.jacceco.2007.05.002
  • Carhart, M. M. (1997). On persistence in mutual fund performance. The Journal of Finance, 52(1), 57–82. https://doi.org/10.1111/j.1540-6261.1997.tb03808.x
  • Carneiro, J., Rodrigues, L. L., & Craig, R. (2017, September). Assessing international accounting harmonization in Latin America. Accounting Forum, 41(3), 172–184. https://doi.org/10.1016/j.accfor.2017.06.001
  • Chen, H., Chen, J. Z., Lobo, G. J., & Wang, Y. (2011). Effects of audit quality on earnings management and cost of equity capital: Evidence from China. Contemporary Accounting Research, 28(3), 892–925. https://doi.org/10.1111/j.1911-3846.2011.01088.x
  • Choi, J. S., Lim, H. J., & Mali, D. (2017). Mandatory audit firm rotation and Big4 effect on audit quality: Evidence from South Korea. Asian Academy of Management Journal of Accounting and Finance, 13(1), 1–40. https://doi.org/10.21315/aamjaf2017.13.1.1
  • Corbella, S., & Florio, C. (2010, September). Issues arising for accounting harmonization: The case of stock options in Italy. Accounting Forum, 34(3-4), 184–195. https://doi.org/10.1016/j.accfor.2010.08.001
  • DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183–199. https://doi.org/10.1016/0165-4101(81)90002-1
  • DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2-3), 275–326. https://doi.org/10.1016/j.jacceco.2014.09.002
  • Deis, D. R., Jr., & Giroux, G. A. (1992). Determinants of audit quality in the public sector. The Accounting Review, 462–479.
  • Dopuch, N., Holthausen, R. W., & Leftwich, R. W. (1986). Abnormal stock returns associated with media disclosures of ‘subject to’ qualified audit opinions. Journal of Accounting and Economics, 8(2), 93–117. https://doi.org/10.1016/0165-4101(86)90013-3
  • Dye, R. A. (1993). Auditing standards, legal liability, and auditor wealth. Journal of Political Economy, 101(5), 887–914. https://doi.org/10.1086/261908
  • Easton, P. (2004). PE ratios, PEG ratios, and estimating the implied expected rate of return on equity capital. The Accounting Review, 33(3-4), 374–394.
  • Ettredge, M., Fuerherm, E. E., & Li, C. (2014). Fee pressure and audit quality. Accounting, Organizations and Society, 39(4), 247–263. https://doi.org/10.1016/j.aos.2014.04.002
  • Fama, E. F., & French, K. R. (1992). The cross-section of expected stock returns. The Journal of Finance, 47(2), 427–465. https://doi.org/10.1111/j.1540-6261.1992.tb04398.x
  • Fama, E. F., & French, K. R. (2016). Dissecting anomalies with a five-factor model. The Review of Financial Studies, 29(1), 69–103. https://doi.org/10.1093/rfs/hhv043
  • Felix, W. L., Jr., Gramling, A. A., & & Maletta, M. J. (2001). The contribution of internal audit as a determinant of external audit fees and factors influencing this contribution. Journal of Accounting Research, 39(3), 513–534. https://doi.org/10.1111/1475-679X.00026
  • Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2005). The market pricing of accruals quality. Journal of Accounting and Economics, 39(2), 295–327. https://doi.org/10.1016/j.jacceco.2004.06.003
  • Fukukawa, H., Mock, T. J., & Wright, A. (2006). Audit programs and audit risk: A study of Japanese practice. International Journal of Auditing, 10(1), 41–65. https://doi.org/10.1111/j.1099-1123.2006.00298.x
  • Gebhardt, W. R., Lee, C. M. C., & Swaminathan, B. (2001). Toward an implied cost of capital. Journal of Accounting Research, 39(1), 135–176. https://doi.org/10.1111/1475-679X.00007
  • Ghio, A., & Verona, R. (2015, June). Accounting harmonization in the BRIC countries: A common path? Accounting Forum, 39(2), 121–139. https://doi.org/10.1016/j.accfor.2015.02.001
  • Guénin-Paracini, H., Malsch, B., & Paillé, A. M. (2014). Fear and risk in the audit process. Accounting, Organizations and Society, 39(4), 264–288. https://doi.org/10.1016/j.aos.2014.02.001
  • Gul, F. A., Chen, C. J., & Tsui, J. S. (2003). Discretionary accounting accruals, managers’ incentives, and audit fees. Contemporary Accounting Research, 20(3), 441–464. https://doi.org/10.1506/686E-NF2J-73X6-G540
  • Gul, F. A., & Goodwin, J. (2010). Short-term debt maturity structures, credit ratings, and the pricing of audit services. The Accounting Review, 85(3), 877–909. https://doi.org/10.2308/accr.2010.85.3.877
  • Hackenbrack, K. E., & Hogan, C. E. (2005). Client retention and engagement-level pricing. Auditing: A Journal of Practice & Theory, 24(1), 7–20. https://doi.org/10.2308/aud.2005.24.1.7
  • Hogan, C. E., & Wilkins, M. S. (2008). Evidence on the audit risk model: Do auditors increase audit fees in the presence of internal control deficiencies? Contemporary Accounting Research, 25(1), 219–242. https://doi.org/10.1506/car.25.1.9
  • Holm, C., & Zaman, M. (2012, March). Regulating audit quality: Restoring trust and legitimacy. Accounting Forum, 36(1), 51–61. https://doi.org/10.1016/j.accfor.2011.11.004
  • Hou, K., Dijk, M. A. V., & Zang, Y. (2012). The implied cost of capital: A new approach. Journal of Accounting and Economics, 53(3), 504–526. https://doi.org/10.1016/j.jacceco.2011.12.001
  • Houqe, M. N., Ahmed, K., & Van Zijl, T. (2017). Audit quality, earnings management, and cost of equity capital: Evidence from India. International Journal of Auditing, 21(2), 177–189. https://doi.org/10.1111/ijau.12087
  • Jung, S. H. (2016). Audit effort and market-perceived risk: Evidence from South Korea. Australian Accounting Review, 26(3), 255–270. https://doi.org/10.1111/auar.12099
  • Khan, A., Muttakin, M. B., & Siddiqui, J. (2015). Audit fees, auditor choice and stakeholder influence: Evidence from a family-firm dominated economy. The British Accounting Review, 47(3), 304–320. https://doi.org/10.1016/j.bar.2015.03.002
  • Khurana, I. K., & Raman, K. K. (2004). Litigation risk and the financial reporting credibility of Big 4 versus non-Big 4 audits: Evidence from Anglo-American countries. The Accounting Review, 79(2), 473–495. https://doi.org/10.2308/accr.2004.79.2.473
  • Kim, J. B., Song, B. Y., & Zhang, L. (2011). Internal control weakness and bank loan contracting: Evidence from SOX section 404 disclosures. The Accounting Review, 86(4), 1157–1188. https://doi.org/10.2308/accr-10036
  • Kinney, W. R., Jr., Palmrose, Z. V., & Scholz, S. (2004). Auditor independence, non-audit services, and restatements: Was the US government right? Journal of Accounting Research, 42(3), 561–588. https://doi.org/10.1111/j.1475-679X.2004.t01-1-00141.x
  • Kisgen, D. J. (2006). Credit ratings and capital structure. The Journal of Finance, 61(3), 1035–1072. https://doi.org/10.1111/j.1540-6261.2006.00866.x
  • Kraft, P. (2015). Do rating agencies cater? Evidence from rating-based contracts. Journal of Accounting and Economics, 59(2-3), 264–283. https://doi.org/10.1016/j.jacceco.2014.09.008
  • Lambert, T. A., Jones, K. L., Brazel, J. F., & Showalter, D. S. (2017). Audit time pressure and earnings quality: An examination of accelerated filings. Accounting, Organizations and Society, 58, 50–66. https://doi.org/10.1016/j.aos.2017.03.003
  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1997). Legal determinants of external finance. The Journal of Finance, 52(3), 1131–1150. https://doi.org/10.1111/j.1540-6261.1997.tb02727.x
  • Lennox, C. S., & Pittman, J. A. (2011). Voluntary audits versus mandatory audits. The Accounting Review, 86(5), 1655–1678. https://doi.org/10.2308/accr-10098
  • Lim, H. J., & Mali, D. (2018). Does relative efficiency matter? An analysis of market uncertainty. Investment Analysts Journal, 47(2), 127–148. https://doi.org/10.1080/10293523.2018.1466491
  • Lintner, J. (1965). Security prices, risk, and maximal gains from diversification. The Journal of Finance, 20(4), 587–615.
  • Lisic, L. L., Silveri, S. D., Song, Y., & Wang, K. (2015). Accounting fraud, auditing, and the role of government sanctions in China. Journal of Business Research, 68(6), 1186–1195. https://doi.org/10.1016/j.jbusres.2014.11.013
  • Lobo, G. J., & Zhao, Y. (2013). Relation between audit effort and financial report misstatements: Evidence from quarterly and annual restatements. The Accounting Review, 88(4), 1385–1412. https://doi.org/10.2308/accr-50440
  • Lyon, J. D., & Maher, M. W. (2005). The importance of business risk in setting audit fees: Evidence from cases of client misconduct. Journal of Accounting Research, 43(1), 133–151. https://doi.org/10.1111/j.1475-679x.2005.00165.x
  • Mali, D., & Lim, H. J. (2018). Conservative reporting and the incremental effect of mandatory audit firm rotation policy: A comparative analysis of audit partner rotation vs audit firm rotation in South Korea. Australian Accounting Review, 28(3), 446–463. https://doi.org/10.1111/auar.12206
  • Mali, D., & Lim, J. H. (2019). The influence of firm efficiency on agency credit ratings. The Journal of Credit Risk, 15(1), 67–102. https://doi.org/10.21314/JCR.2018.242
  • Mansi, S. A., Maxwell, W. F., & Miller, D. P. (2004). Does auditor quality and tenure matter to investors? Evidence from the bond market. Journal of Accounting Research, 42(4), 755–793. https://doi.org/10.1111/j.1475-679X.2004.00156.x
  • Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77–91.
  • Minnis, M. (2011). The value of financial statement verification in debt financing: Evidence from private US firms. Journal of Accounting Research, 49(2), 457–506. https://doi.org/10.1111/j.1475-679X.2011.00411.x
  • Morgan, J., & Stocken, P. (1998). The effects of business risk on audit pricing. Review of Accounting Studies, 3(4), 365–385. https://doi.org/10.1023/A:1009687101871
  • Niemi, L. (2005). Audit effort and fees under concentrated client ownership: Evidence from four international audit firms. The International Journal of Accounting, 40(4), 303–323. https://doi.org/10.1016/j.intacc.2005.09.006
  • O'Keefe, T. B., Simunic, D. A., & Stein, M. T. (1994). The production of audit services: Evidence from a major public accounting firm. Journal of Accounting Research, 32, 241–261. https://doi.org/10.2307/2491284
  • PCAOB. (2010). Auditing Standard No. 14: Evaluating audit results. PCAOB release No. 2010-2004.
  • Pittman, J. A., & Fortin, S. (2004). Auditor choice and the cost of debt capital for newly public firms. Journal of Accounting and Economics, 37(1), 113–136. https://doi.org/10.1016/j.jacceco.2003.06.005
  • Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425–442.
  • Shu, S. Z. (2000). Auditor resignations: Clientele effects and legal liability. Journal of Accounting and Economics, 29(2), 173–205. https://doi.org/10.1016/S0165-4101(00)00019-7
  • Simunic, D. A. (1980). The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18, 161–190. https://doi.org/10.2307/2490397
  • Simunic, D. A., & Stein, M. T. (1996). Impact of litigation risk on audit pricing: A review of the economics and the evidence. Auditing, 15, 119.
  • Skinner, D. J., & Srinivasan, S. (2012). Audit quality and auditor reputation: Evidence from Japan. The Accounting Review, 87(5), 1737–1765. https://doi.org/10.2308/accr-50198
  • Watts, R. L. (1977). Corporate financial statements, a product of the market and political processes. Australian Journal of Management, 2(1), 53–75. https://doi.org/10.1177/031289627700200104
  • Watts, R. L., & Zimmerman, J. L. (1983). Agency problems, auditing, and the theory of the firm: Some evidence. The Journal of Law and Economics, 26(3), 613–633. https://doi.org/10.1086/467051
  • Weber, J., Willenborg, M., & Zhang, J. (2008). Does auditor reputation matter? The case of KPMG Germany and Com ROAD AG. Journal of Accounting Research, 46(4), 941–972. https://doi.org/10.1111/j.1475-679X.2008.00298.x
  • Woods, C. (2013). Classifying South Korea as a developed market. White Paper Report.

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.