산업전문가 감사인과 피감사기업의 투자의사결정

Value of high quality audits has been extensively examined in the auditing literature. While most previous studies focus on the issues related to auditor size proxied by Big N and non-Big N dichotomy (i.e., quality differences between the Big N and non-Big N auditors), a strand of research has posited and found that the audit quality of industry specialist auditors (ISAs) is higher than that of their non-ISA counterparts. More specifically, the accounting and disclosure quality for client firms of ISA is higher than that of non-ISA. Previous studies also find that both equity and debt cost of capital is lower for firms that hire ISA compared with client firms with non-ISA. In this study, we examine a possibility that the role of ISAs extends beyond what previous studies have demonstrated. For instance, ISAs can provide advice beyond basic Generally Accepted Accounting Principles (GAAP) to client firms, thus adding value to the client firm through high quality services that encompass both financial and non-financial aspects. One such aspects is firms’ investment decisions. Hence, we examine whether investment decision of the firms that hire ISAs is higher than that of the firms with non-ISAs. There are reasons to believe that ISAs might help client firms improve investment efficiency in several different but related ways. First, ISAs can more effectively curb both intentional and unintentional errors in the financial statements through their expertise in the respective industry relative to non-ISAs. ISAs also help clients develop industry specific disclosure policy through their knowledge and expertise. Given that misleading earnings and fraudulent financial reporting lead to distorted investment decisions, the high reporting and disclosure quality associated with ISAs is likley to help firms make more efficient investment decisions. Second, higher audit quality of ISAs enable firms to reduce information asymmetry, thereby making funds available for firms to undertake value-enhancing projects that otherwise would have been passed up for the lack of funding. This also likely helps firms improve their investment efficiency. Third, previous studies find that services of ISAs are not limited to client financial statements audit. Conversely, there are also reasons to doubt that the effect of hiring ISAs will be consequential on client firms’ investment efficiency. First, auditors are not obligated to audit client firms’ investment decisions per se. Second, although previous research has demonstrated that ISAs are associated with higher accounting and disclosure quality of the client firm, recent studies question the validity of the positive relation between alleged high quality audits by the Big N auditors and accounting quality. Using the conventional proxies of ISAs and after controlling for endogeneity using a Heckman two-stage regression analysis, we find compelling evidence that ISAs are positively associated with client firm investment decision. When investment decision is split into under-investment and over-investment, the positive association is more pronounced in the over-investment direction, indicating that ISAs suppress over-investment more than do they under-investment. The results are qualitatively robust if client assets or the number of clients instead of client revenues are utilized when calculating industry specialization. We also demonstrate that investment decision improves when client firms change auditors from a non-ISA to a ISA. On the other hand, investment decision declines when client firms change auditors from a ISA to a non-ISA. In addition, irrespective of the differences in the definition of industry specialization (e.g., auditors with the largest market share dummy; auditors with the market share equal to or over 24 percent; auditors with the largest and the second largest market share), the results are unaffected. We also find that the relationship is not uniform across different market shares of industry specialist auditors. More specially, the positive association is the most pronounced when the specialist auditors’ market share is between 30 and 40 percent. Overall, our findings constitute convincing evidence that industry specialist auditors have higher audit quality in the Korean audit markets. We also show that the positive association between ISAs and investment decision is not entirely attributable to higher accounting quality associated with ISAs as demonstrated in the extant literature. Our work has an important contribution to the extant literature in that it provides robust evidence on the role of ISAs on client firms’ real investment decisions, thereby adding insights into the literature on both ISAs and investment efficiency alike. Specifically, our finding indicates that ISAs are positively associated with client firm investment efficiency beyond what has been expected through the high quality reporting or disclosure attributed to ISAs as suggested in the extant literature.