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The effect of CEO turnover on audit report lag and management discretionary report lag: Evidence from Korea

Title
The effect of CEO turnover on audit report lag and management discretionary report lag: Evidence from Korea
Authors
Bae C.-H.Woo Y.-S.
Ewha Authors
우용상
SCOPUS Author ID
우용상scopus
Issue Date
2016
Journal Title
Investment Management and Financial Innovations
ISSN
1810-4967JCR Link
Citation
vol. 13, no. 1, pp. 61 - 66
Keywords
Audit report lagCEO turnoverManagement discretionary report lag
Publisher
LLC CPC Business Perspectives
Indexed
SCOPUS scopus
Abstract
This study empirically investigates the effect of a CEO turnover on audit report lag (ARL), discretionary report lag (DRL) and total report lag (TRL). The object of this study is to provide empirical evidence for the responses of both the CEO and the external auditor on audit risk increases and information asymmetry that occur as a result of a CEO turnover. According to the previous study on CEO turnovers, the CEO turnover would increase audit risk and information asymmetry (Sohn et al., 2014). In this situation, the CEO has an incentive to provide timely information to decrease the monitoring costs and cost of debt (Lee et al., 2008). It is expected that an external auditor spends a large amount of time on audit procedures to lower the audit risk when the CEO changes. Therefore, the CEO turnover would have a conflicting effect on the ARL and DRL. The results of the analysis are as follows. First, the ARL increases and DRL decreases when the CEO changes, which suggests that an external auditor spends a great amount of time on audit procedures to lower the audit risk because the audit risk increases when the CEO changes. A new CEO provides information faster to reduce monitoring costs and cost of debt that occur due to information asymmetry. Second, the ARL increases and DRL decreases as the frequency of CEO turnover increases. An external auditor would estimate the audit risk as being high if the CEO changes more frequently. To lower the audit risk to an acceptable level, many audit hours are spent on audit procedures by an external auditor, which increases the ARL. A new CEO has an incentive to provide timely information when the CEO changes more frequently. Thus, the DRL decreases as the frequency of CEO turnover increases. © Chang-Hyun Bae, Yong-Sang Woo, 2016.
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경영대학 > 경영학전공 > Journal papers
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