The Effect of Board Characteristics on the Relationship between Managerial Overconfidence and Audit Report Lag: Evidence from Korea

This study aimed to empirically analyze the effect of board characteristics on the relationship between managerial overconfidence and audit report lag. Managerial overconfidence was measured according to the method proposed by Schrand and Zechman (2012). The study sample comprised 4,179 firm-year observations listed on the Korea Composite Stock Price Index from 2011 to 2017. The results of the analysis were as follows. First, there was a significant positive correlation between managerial overconfidence and audit report lag. Second, the larger the board size, the more it mitigated the relationship between managerial overconfidence and audit report lag. Third, as the ratio of outside directors on the board increased, the positive relationship between managerial overconfidence and audit report lag decreased. This study is meaningful because it directly examined how the complex relationship between the characteristics of managers and the characteristics of the board of directors affects audit report lag. Managerial overconfidence increased the firm's audit risk and acted as a determinant of audit performance, and, by suggesting that it results in an increase in audit effort, the results of this study have implications for supervisory agencies, auditors, and audit target companies. In addition, the study is meaningful because it suggests that the characteristics of the board of directors can reduce audit risk by functioning as an excellent corporate governance structure.