Periodic auditor designation and the deterrence of stock price crash risk: evidence from Korea

This paper examines whether Korea’s regulator-assigned periodic auditor designation (PAD) is followed by lower stock price crash risk. Exploiting the staggered introduction of designation across the 2020–2022 cohorts within a 2017–2024 panel of KOSPI- and KOSDAQ-listed companies, we estimate difference-in-differences specifications that decompose the three-year designation spell into its first, second, and third years. Crash risk, measured by the negative skewness of firm-specific weekly returns and the asymmetric volatility of negative versus positive returns, declines in the first designation year. The effect of PAD regime on crash risks is concentrated among KOSDAQ companies. Clean-control and randomization-placebo diagnostics support the design. The concentration of effects in the first designation year is consistent with an expectation-based independence channel and rationalizes the periodic structure of the regime. The evidence links regulatory auditor assignment to a market-based tail-risk outcome relevant to rotation debates.