The Impact of Asymmetric Cost Behavior on the Audit Report Lag

Jin Ho Kim

Abstract

This study examines the impact of the cost stickiness on the audit report lag. The author finds that company’s asymmetric cost behavior, cost stickiness, is one of the important determinants of the audit report lag. The test results show that firm’s cost stickiness induced by empire building incentives is positively associated with the audit report lag. Interestingly, in the “future expectation” group, stickiness is also positively related with the audit report lag but not significant. It implicates that even if the firm has an inefficient cost behavior, auditors do not consider it as an audit risk compared to the suspected group of “empire building”.