[Using earnings announcement events made by firms belonging to Korean chaebols, we examine propping within a chaebol. Consistent with the market's ex ante valuation of intragroup propping, we find that the announcement of increased (decreased) earnings by a chaebol-affiliated firm has a positive (negative) effect on the market value of other nonannouncing affiliates. The sensitivity of the change in the market value of nonannouncing affiliates to abnormal returns for the announcing firms is higher if the cash flow right of the announcing firm's controlling shareholder is higher. The sensitivity is also higher if the announcing firm is larger, performs well, and has a higher debt guarantee ratio.]

Using earnings announcement events made by firms belonging to Korean chaebols, we examine propping within a chaebol. Consistent with the market's ex ante valuation of intragroup propping, we find that the announcement of increased (decreased) earnings by a chaebol-affiliated firm has a positive (negative) effect on the market value of other nonannouncing affiliates. The sensitivity of the change in the market value of nonannouncing affiliates to abnormal returns for the announcing firms is higher if the cash flow right of the announcing firm's controlling shareholder is higher. The sensitivity is also higher if the announcing firm is larger, performs well, and has a higher debt guarantee ratio.

Higher audit fees associated with auditor industry specialization could represent higher unit price charged by industry specialist auditors (ISAs) or the provision of a greater quantity of audit services. This study exploits a field setting in Korea, where the disclosure of audit hours is required in company annual reports, and finds that ISAs charge significantly higher total audit fees but also expend significantly greater audit hours than non‐ISAs. When audit fees and hours are considered together, the unit audit price of ISAs is significantly lower than that of non‐ISAs. This indicates that higher total audit fees associated with ISAs are likely to be attributable to greater audit hours associated with ISAs. However, greater audit hours for ISAs may suggest higher audit quality or may simply indicate that the additional audit work performed by ISAs is conducted by relatively cheaper junior auditors. Our work provides an alternative explanation for the higher total audit fees documented in the previous studies.

We examine the relation between low‐quality internal controls and audit fee premiums. Using a novel data set of audit hours and audit fees we find, consistent with the audit risk model, that auditors increase their effort (hours) owing to low internal control quality. We find that auditors also charge a significant fee premium to clients with internal control weaknesses. This premium is observed for severe internal control weaknesses and companies with low‐quality alternative governance mechanisms. The results are robust to multiple methods to address endogeneity, including company fixed effects, difference‐in‐differences design, and a propensity score‐matched sample. Taken as a whole, low internal control quality leads to fee premiums, which are a deadweight loss to client companies.