ABSTRACT

In this paper, we examine the relationship between audit effort measured as audit hours and a firm’s weighted average cost of capital (WACC). Using a sample of Korean listed firms, we hypothesise a potentially bi-directional relationship between WACC and audit effort based on audit “supply”/audit “demand” theory. We find that after controlling for known determinants of firm risk, additional audit hours reduce a firm’s WACC. In our additional analysis, we continue to find that WACC reduces with audit hours based on risk partitioning for (i) Big4 clients/investment grade (IG) firms and (ii) NonBig4 clients/non-investment grade (NIG) firms. However, we find the reduction in WACC occurs at a lower rate for the less risky group compared to the riskier group. We interpret that market participants consider Big4 clients/IG firms to have lower risk, and thus, the marginal effect of greater audit hours in enhancing audit quality (reducing audit risk) is lower for Big4 clients/IG firms compared to NonBig4 clients/NIG firms. Taken together, our findings consistently demonstrate that audit hours (effort) reduce WACC based on audit hours signalling audit quality to market participants.

摘要

在本文中，我们研究了以审计时间衡量的审计工作与公司的加权平均资本成本 (WACC) 之间的关系。使用韩国上市公司的样本，我们基于审计“供应”/审计“需求”理论假设 WACC 和审计工作之间存在潜在的双向关系。我们发现，在控制了公司风险的已知决定因素之后，额外的审计时间会降低公司的 WACC。在我们的额外分析中，我们继续发现 WACC 会随着基于 (i) Big4 客户/投资级 (IG) 公司和 (ii) NonBig4 客户/非投资级 (NIG) 公司的风险划分的审计时间而减少。然而，我们发现与风险较高的组相比，较低风险组的 WACC 降低率较低。我们认为市场参与者认为 Big4 客户/IG 公司的风险较低，因此，与非四大客户 / NIG 公司相比，大 4 大客户 / IG 公司的更多审计时间在提高审计质量（降低审计风险）方面的边际效应较低。综上所述，我们的调查结果一致表明，基于向市场参与者发出审计质量信号的审计时间，审计时间（工作量）会降低 WACC。