감사인 지정에 대한 시장반응

The term “Mandatory Auditor Designation” refers to a exceptional regulation, in Korea, through which a regulation authority, SFC(Securities & Futures Commission), intervenes in the audit market, by designating auditors mandatorily to certain firms, so that the firms can provide reliable accounting information to market participants. For example, auditors have been assigned mandatorily to the firms with higher disparity between ownership and management, high level of debt ratio, and excess of loans, etc. However, since audit committee was introduced to monitor audit process in 1999, mandatory auditor designation by SFC is not applied to firms whose audit committee designates auditors to the firms. In addition, it is possible that SFC can designates auditors mandatorily to firms again unless the causes of mandatory auditor designation have not been resolved for three years after the first mandatory auditor designation. Thus, SFC is believed to expect that the reliability of accounting information could be increased with the regulation of mandatory accounting designation, which implies that mandatory auditor designation can be a way to protect accounting information from being decreased driven by FAES(Free Audit Engagement System). Therefore, by checking whether mandatory auditor designation has made substantially effective, this paper provides both market participants and a regulation authority with important implications as to the validity of SFC’s intervention in free audit market, with regard to the reliability of accounting information and independence of auditors. Prior studies have examined the effectiveness of mandatory auditor designation by analyzing the change in discretionary accruals, and showed that auditors are able to keep their independence from firms and discretionary accruals has decreased after mandatory auditor designation(Park 1996; Kwon et al .2004; Ahn et al. 2004; Park et al. 2005). However, there are fundamental limitations in their conclusions that accounting information quality has been improved, if the conclusion has been extracted from analyzing decreases in discretionary accruals. This is because discretionary accruals have two problematic properties. The first is that we cannot always treat discretionary accruals as opportunistic, considering its positive role of signalling managers’ private information to the market(Subramanyam, 1996). The second is that discretionary accruals are far from measurement errors. In addition to the above-mentioned problematic properties of discretionary accruals, discretionary accruals, themselves, do not show directly how the information users react to the regulation of mandatory auditor designation. Considering that the purpose of financial reporting is to provide market participants with reliable information, the effectiveness of mandatory auditor designation should be verified by checking whether the market investors perceive the improvement in reliability of the accounting information by mandatory auditor designation. Therefore, unlike the prior studies, our paper investigates the effects of the mandatory auditor designation using market responses to it. According to prior studies in Korea, the independence of mandatorily designated auditors are expected to be increased. From this point, we expect that the increased independence will make earnings quality higher for the mandatory auditor designation firms, thereby leading to positive market responses to mandatory auditor designation. To do it, we analyze cumulated abnormal returns (hereafter, CARs) around the day of mandatory auditor designation. And the purpose of mandatory auditor designation by SFC is supposed to improve the quality of accounting information, not only in the short window but also in the long window. So, we examine the long-term effect of mandatory auditor designation, in addition. To do it, we analyze the earnings response coefficients(hereafter, ERCs) from the returns-earnings model. For the period from 1994 through 2002, we obtain 179 firm-years where auditors are firstly and mandatorily designated by SFC. The results are as follows. First, the analysis of the market response reveals that significantly positive CARs are observed during a certain days around the day when auditors are firstly and mandatorily designated. For the robustness of our analysis, we collect matching samples whose firm-characteristics is similar to those of the designated firms. Naturally, the auditors of matching firms are not designated auditors. Comparing the mandatory auditor designation firms with the matching firms, we observe that CARs of the mandatory auditor designation firms are higher than CARs of the matching firms. Second, for the mandatory auditor designation firms, ERCs steadily increase after the mandatory auditor designation year, while ERCs continuously decrease before the designation year. However, we could not find any noticeable trends in ERCs for the matching firms. This discrepancy implies that the market also positively responses to the mandatory auditor designation even for a long-term period. Therefore, our findings reinforce the results of prior studies by showing positive effects of the mandatory auditor designation. However, because our paper focuses only on the firms whose auditors are firstly and mandatorily designated by SFC, we cannot trace the firms that are designated again after the first designation year. In addition, according to the previous literature, discretionary accruals has changed differentially according to the causes of mandatory auditor designation. In our paper, we do not consider the possibility of differential market responses to the different mandatory auditor designation causes. Both the market responses to the firms with repeatedly designated auditors and the differential responses to the differential causes of mandatory auditor designation remain topics for future research.