Foreign monitoring and audit quality: Evidence from Korea

Sang Cheol Lee, Mooweon Rhee, Jongchul Yoon

Research output: Contribution to journalArticlepeer-review

13 Scopus citations


This study investigates the effects of both foreign majority shareholders and foreign investors' participation in the board of directors on audit quality, as reflected by auditor size and audit fees. In addition, the study examines the moderating effect of an agency problem on the relationship between foreign investors and the monitoring of audit quality. Using 1574 non-financial firm-year observations listed on the Korea Stock Exchange from 2000 to 2003, we find that the presence of foreign investors such as foreign block shareholders and foreign outside directors increases audit quality. At the same time, the monitoring role of foreign block shareholders is more powerful than that of foreign external directors. Moreover, the foreign block shareholders in professional management-controlled firms exert a more profound influence on audit quality than do those in owner-controlled ones. These test results imply that foreign investors with independence, expertise, and monitoring incentives could play an important role in improving the corporate governance system in Korea, which in turn would not only enhance firm value, but also strengthen the sustainability of Korean companies.

Original languageEnglish
Article number3151
JournalSustainability (Switzerland)
Issue number9
StatePublished - 4 Sep 2018

Bibliographical note

Publisher Copyright:
© 2018 by the authors.


  • Agency problem
  • Audit fees
  • Audit quality
  • Auditor size
  • Foreign block shareholders
  • Foreign external directors


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