내부회계관리제도 취약점 및 상위직급감사인 감사투입시간비율과 주가폭락위험의 관련성

Abstract

“Crash risk is a large negative market-adjusted stock returns" (Hutton, Marcus, and Tehranian, 2009) and is ”an undesirable characteristic of a firm for investors (Chen, Chan, Dong, and Zhang 2017).” Also, “the stock price crash occurs when accumulated negative firm-specific information is suddenly released (Hutton et al. 2009)." Sudden transmission of cumulative negative information is combined results led by poor accounting quality and low audit quality. In the same contexts, previous studies have examined whether stock price crash is related to the corporate or auditor characteristics. In particular, with respect to corporate characteristics, the internal control quality (Chen et al. 2017), governance effectiveness (Andreou, Antoniou, Horton, and Louca 2016), accounting opacity measured by discretionary accruals (Hutton et al. (Kim and Zhang 2015; Kim, Moon, and Choi), the real earnings management (Francis, Hasan, and Li 2016; Lee, Lee, and Choo 2017), accounting comparability (Kim and Zhang 2015; Cho, Moon, and Choi 2015) are related to stock price crash risks. Meanwhile, with respect to auditor characteristics, industry specialist auditors (Robin and Zhang 2015), auditor tenures (Callen and Fang 2017), and auditor size and auditor changes (Lee 2017) are related to stock price crash risks. This study extends the above studies by examining the relations with subsequent stock price crash risks by employing corporate characteristics (internal control vulnerability) and the characteristics of auditors (the ratio of audit hours of upper level officers), together. Moreover, we note that previous studies with respect to auditor characteristics and stock price crash risks are focusing on items constituting the given auditor competence or auditor conditions. This study focuses on the aspect of the auditor behaviors in response in relation to the characteristics of the auditor. Our study is contrasted with them since our work is focusing on auditor behaviors that the auditor determines. Specifically, the US Public Company Accounting Oversight Board (PCAOB) (2015) explains that involvements of the senior-level auditors, such as the audit partner or managers, could be an audit quality indicator. In fact, Ryu et al. (2015) and Choi et al. (2016) reported empirical evidences that the higher ratio of audit hours spent by senior-level auditors, such as audit partners and registered accountants, the better audit quality. The ratio of audit hours of the senior-level auditor are not an given conditions, but showing differential auditor behaviors according to the audit procedure determined by the auditor. In this study, we use audit hours ratio of the senior-level auditor (i.e. audit partners and registered accountants) as the auditor characteristics variables. Final samples are for three year periods from 2014 when the external audit laws started to require disclosure of audit hours data by auditor grade in the audit reports, and are 3,897 firm-years, after excluding the missing data samples. The results of this study show that firms reporting internal control weaknesses are more likely to be significantly related to subsequent stock price crash risks, however, their relations with audit input hour ratio of audit partners and registered accountants are not significant. Meanwhile, higher audit input hour ratio of audit partners and registered accountants are significantly decreasing subsequent stock crash risks of the companies reporting internal control weaknesses (although their significances vary across the stock price crash proxies). The results of our study suggest that it is necessary to consider both auditor and company characteristics with respect to stock price crash risks together (although they are some weak evidences), also, it needs to note auditor reacting behaviors as well as given conditions with respect to auditor characteristics. Our study has several additional contributions in comparison with previous domestic and foreign studies. First, this study is the first Korean study to examine the relationship between internal controls weaknesses and stock price crash risk. Second, this study combines the internal control weakness and the auditor characteristics to investigate the relations with stock price crashes. Third, this study focuses on the aspect of the auditor’s response behaviors in terms of the senior-level auditor’s audit input hour ratios. These would constitute additional contributions in comparison with the Korean and foreign studies related to stock price crash risks.