Abstract

This study investigates whether abnormal audit hours is associated with the information effect of future earnings(Future Earnings Response Coefficient, hereafter ‘FERC’). Prior studies related with abnormal audit hours suggest that audit risk and information risk are positively associated with audit hours. And audit hours is negatively associated with earnings management. In the respect, this study establishes null hypothesis that abnormal audit hours is not related to FERC. The hypothesis is tested by using sample firms listed on the Korean Stock Exchange from the year of 2002 to the year of 2009 inclusively. We followed methodology of Tucker and Zarowin(2006). We find that the regression coefficient for abnormal audit hours×Xt3 shows a statistically significant negative sign. Also, we performed additional test after controlling for variables related with FERC. The regression coefficient for abnormal audit hours×Xt3 is consistent with main results. This result means that the changes in the current stock price of higher-abnormal audit hours contain less information about their future earnings than the changes in the stock price of lower-abnormal audit hours. The evidence suggests that investors pessimistically understand high-audit hours. Also this study contributes to extant literature on audit hours by providing evidence high audit hours is negatively related to FERC.

Keywords

• Future Earnings Response Coefficient(FERC)
• Abnormal Audit Hours

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