Auditor Investments in Quality Control Departments and Clients’ Crash Risk: Evidence from Korea
Abstract
This study explores whether an auditor’s investment in its quality control (QC) department affects its clients’ subsequent idiosyncratic stock price crash risk. Drawing on unique data on auditors’ transparency reports from Korea, we find that a higher ratio of auditors’ QC labor costs lowers firm-specific crash risk. Additional analysis suggests that QC’s effect on crash risk is primarily attributable to QC personnel quality rather than quantity. We further report that the effect is pronounced for firms audited by non-Big 4 and newly engaged auditors. These findings are not sensitive when utilizing alternative research designs. Our evidence highlights the auditors’ QC role in reducing clients’ behaviors of bad news hoarding.
Fields of Study & Subjects
Auditing
Earnings Management
Governance
Corporate Governance and Financial Management
Corporate Finance and Governance
Publication details
- Journal / source
- Emerging Markets Finance and Trade
- Volume
- 62
- Issue
- 12
- Pages
- 4609–4629
- Publication date
- 13 January 2026
- Language
- EN