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The Effect of Litigation Risk Increase on Big N Auditor Exits and Audit Quality in the Korean Savings Banking Industry

Authors
정남철
Issue Date
16-Sep-2019
Publisher
WILEY
Citation
AUSTRALIAN ACCOUNTING REVIEW, v.29, no.3, pp.502 - 515
Journal Title
AUSTRALIAN ACCOUNTING REVIEW
Volume
29
Number
3
Start Page
502
End Page
515
URI
https://scholarworks.bwise.kr/hongik/handle/2020.sw.hongik/1124
ISSN
1035-6908
Abstract
This study investigates whether an increase in litigation risk results in Big N auditors leaving the industry and examines the impact of this increase on audit quality. Using a sample of Korean savings banks from 2009 to 2015, the study finds that the proportion of Big N auditors sharply decreases after a savings bank crisis, suggesting that Big N auditors are likely to reject riskier clients, while audit quality is unchanged. The results provide new evidence that an increase in litigation risk does not necessarily increase audit quality. The findings have academic and practical implications, as they suggest that policies for improving audit quality should consider auditors' strategies in response to litigation risk.
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