ScholarWorks@숙명여자대학교

초록

[Purpose]Regulatory review refers to a system in which regulators take appropriate action for entities that do not properly meet their accounting standards for preparing financial statements and their associated disclosure obligations. In addition, such a monitoring system is a government－level market management system because it serves to enhance the reliability and transparency of accounting information and the system is implemented to protect information users. However, with the effectiveness of such a monitoring system frequently questioned, academia and the business community have been paying attention to how auditors respond to the sanctioned firms after regulatory reviews. In line with the purpose of this study, this paper aims to analyze how the auditors’ efforts toward the sanctioned firms affect the future corporate stock price crash risk. Since stock price crashes are caused by the managerial information opacity, we can expect that future stock price crash risks will be reduced if the auditors make specific efforts to increase the accounting transparency of the sanctioned firms. [Methodology]This study compared the stock price crashes of regulatory reviewed firms with those of non－regulatory reviewed firms with 9,361 firm－year observations of KSE and KOSDAQ from 2002 to 2012. The results of the empirical analyses can be summarized as follows. [Findings]Consistent with our prediction, we find that the stock price crash for the sanctioned firms in the current and next year is significantly higher than that for the non－sanctioned firms. Next, the more efforts the auditors make to improve the transparency of accounting information, the lower the stock price crash risks for the sanctioned firms are shown in the post－sanction period. It suggests that the auditors’ response to the sanctioned firms is an increase in the number of audit hours and risk premium as measured by fee per hour, which in turn lowers the future stock price crash risks. Our findings are generally robust to big 4 auditors and client firms with non－audit service. [Policy Implications]This study contributes to the research on auditors’ responses to the corporate risks by providing evidence that auditors increase risk premium as well as audit hours when faced with the effective FSS regulatory reviews. Thus, this study complements the literature that investigates the relationship between auditors’ behavior and stock price crash risks.