The impact of labour unions on external auditor selection and audit scope: evidence from the Korean market

Autor: Myungsoo Son, Ju Ryum Chung, Ho Young Lee, Eun Jung Cho
Rok vydání: 2017
Předmět:
Zdroj: Applied Economics. 49:4833-4850
ISSN: 1466-4283
0003-6846
DOI: 10.1080/00036846.2017.1296546
Popis: We examine whether labour unions influence external auditor selection and audit scope. As a major user group of financial information, labour unions likely demand financial information of high quality and thus high-quality audits. As a union’s request for wage increases is likely strong when a firm is performing well, management facing wage negotiations with the labour union has incentives to manipulate earnings downward and may therefore prefer auditors who allow more discretion. Using union data unique to Korea during 2005–2008, we find that firms with a stronger labour union tend to choose higher-quality auditors (i.e. Big N or industry specialist auditors). We also find that unionization is negatively (positively) associated with positive (negative) abnormal audit fees and audit hours, and the effects are more pronounced when the union is stronger and more active. Given that departures from normal audit fees and audit hours in either direction arguably impair audit quality, this finding is con...
Databáze: OpenAIRE
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