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Client’s Bargaining Power and Audit Negotiation over Earnings: Evidence from Audit Processes in a Business Groups Environment by Pyung Kyung Kang; Yoo Chan Kim; Dan Palmon is a Decision Sciences article available to read on EtoBox.

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This paper identifies and analyzes contextual factors in the audit environment at the business group level, and finds that the structural complexity of business groups and business group owners' controlling power are significant factors that may influence auditor behavior during the audit negotiation process. Using data for the pre-audit earnings that is uniquely available in South Korea, we find that business group affiliation and the existence of circular control links within business groups are significantly and positively associated with auditors' agreement regarding earnings initially proposed by the management of client firms. We also find that both owners' excessive voting rights over cash-flow rights and related party transactions are significantly positively associated with auditors' agreement regarding the earnings initially proposed by the management of client firms. Our findings will help elucidate the contextual factors that can impact clients' bargaining powers in audit negotiation processes.

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Author

Pyung Kyung Kang; Yoo Chan Kim; Dan Palmon

Publisher

Springer; Springer-Verlag; Kluwer Academic Publishers; Springer Science and Business Media LLC (ISSN 0926-2644)

Published

2020

Language

EN

Field

Decision Sciences (Social Sciences)