Effects of Abnormal Audit Fee on Real Earnings Management
Asian Tax Journal Vol. 13 No. 3 (2012), pp. 83-112
Abstract
This study is aimed at measuring the audit quality of the auditor with real earnings management(REM) as proxies of the audit quality. The purpose of this study is aimed at finding evidence that abnormal audit fee(ABAF) influences REM damaging firm value. The audit fee data for this study were obtained from the audit report on the electronic disclosure system of the Financial Supervisory Service, and all other financial data were retrieved from the Kis－Value and TS－2000. The sample composed of 4,504 firm－year observations is restricted to the elevenyear－period from 1999 to 2009. To upgrade the robustness of this study, the above mentioned regression model was used after the outliers with larger than |3σ| values. To reduce the endogeneity of the model, the 2SLS method were used. The results of the empirical analysis shows that the association between ABAF and REM is significantly negative and the auditor has an incentive to reduce REM that can lead to lowered audit quality by damaging value of corporation and the ability to produce cash flow from operation. The auditor also has an incentive to reduce REM to avoid the litigation risk from stakeholders through stock price decreases through REM in the long－term, in spite of temporary stock price increases. This study finds a difference between the American and Korean accounting environments concerning－earnings management by showing that the audit quality is improved if the audit client pays auditor higher－than－average audit fee in Korea.
Keywords
- audit quality
- audit fee
- abnormal audit fee
- real earnings management
- accrual based earnings management
Related Articles
A Reexamination of Abnormal Audit Fees or Audit Hours and Audit Quality29) －New Data and New Evidence－
19(5) 9-53
Abnormal Audit Fees and Earnings Management －Focused on Privately Held Firms－
14(3) 73-121
The Effect of the Overvalued Stock Price on Financial Reporting Opacity
21(4) 103-150
The Effect of Accrual-based and Real Earnings Management by Non-listed Small Firms on Auditor Choices －Focused on Initial External Audited Firms－
14(3) 29-72
The Effect of Audit Quality on Quarterly Earnings Management
13(3) 9-51