기업의 소송제기 공시에 대한 시장반응과 감사인의 대응 = The Response from Auditor and Market on Corporate Lawsuit Disclosures

다국어 초록 (Multilingual Abstract)

The situation of a company facing a lawsuit due to a case in litigation serves as an unfavorable factor for a corporation. Therefore, it is expected that a case in litigation, once publicly disclosed, will have a negative impact. However, the filing of a lawsuit merely means that a lawsuit has just started, not that a company will necessarily have a financial loss because of the lawsuit. Once a lawsuit has been disclosed, it is difficult to anticipate whether the company will win or lose the lawsuit. Furthermore, there is a possibility that the lawsuit can be dismissed or that charges won``t be filed. So, the uncertainty the company faces often leads to an immediate response from market. Also, a lawsuit against a company is within the scope of a confirming audit, which analyzes the influence the lawsuit will have on a company, and it should be included in an audit opinion. The influence on the financial statement can also be figured out. This study has been conducted on companies, which were listed on the securities market from 2005 to 2010, in the case of their facing a lawsuit during the lawsuit disclosures(application). We manually collect data of lawsuit disclosures from Korea Investor``s Network for Disclosure System(KIND). To verify a hypothesis 1, we use a total of 527 firm-year observations, of which 303 firm-year sample faced defendant. Also, we separate the 303 firm-year sample into monetary lawsuits(N=123) and non-monetary(N=180) lawsuits if the firms announces the amount of lawsuits. For analyses, we used the cumulative abnormal return(CAR) measured by market model around the event day(=announcement of lawsuit disclosures) and the cumulative abnormal return measured by market adjusted model(MCAR). To verify a hypothesis 2, we use a total of 3,359 firm-year observations. Among them, 4.7 percent of firms(about 159 samples) are under lawsuit and 1 percent of firms(about 35 samples) had the respective lawsuits mentioned in the audit report. As a result of this study is that there is more likely to be a negative reaction from the market when the company with a lawsuit and was provoked from monetary lawsuits than to non-monetary lawsuits. In other words, it is interpreted that the market acutely responds to monetary lawsuits directly having an impact on the company value. Most of the non-monetary lawsuits are related to the right of management and the right of controlling a company, so it is expected that the direct and indirect costs from lawsuits and agent costs caused by the inefficiency from the dispute over management rights are unavoidable. But, when it comes to non-monetary lawsuits, it is difficult to estimate the influence of the visible loss and judgment on company value. Therefore, it is believed that they do not make immediate response and defer value judgment until the time of ruling on lawsuits. The response from auditors on corporate lawsuits showed conflicting results. Considering only the corporate lawsuits themselves, audit fees and audit efforts are increased. Auditors are much more willing to carry out performance audits when listed on the report of Auditors as a special case. However, as a result of analyzing both monetary lawsuits and non-monetary lawsuits divided from corporate lawsuits, active audit responses increasing audit fees and putting extra audit effort were found. Monetary lawsuits directly having an impact on financial statements, and inactive responses not merely giving lower audit fees but also not putting extra audit effort were found to non-monetary lawsuits And, it raises doubts about whether auditors severely underestimate non-monetary lawsuits which do not have an impact on financial statements but quite a little on a company. Prior studies report that audit risks are reflected in determining audit fees and audit hours. The studies measure audit risk mostly by financial variables collected from financial statement(for instance, leverage ratio) and the audit report(for instance, going-concern uncertainty opinion). Unlike prior studies, this study use a direct measure of audit risk, the litigation risk of client firms. The risk measured by three different variables: (1) the existence of litigation for the client firms, (2) classify the sample between monetary lawsuits and non-monetary lawsuits, (3) explanatory paragraph in audit report about the sue. This paper extends prior literature by examining client firms facing lawsuits instead of proxy measures. This study expects influence of disclosure policy according to lawsuit types to examine market effect. This study provide valuable insights to market participant, firms, regulators.

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