The Effect of Auditing on Promoting Exports: Evidence from Private Firms in Emerging Markets

We investigate the effect of auditing on promoting exports for private firms in emerging markets. Using a sample of private firms from 125 countries between 2006 and 2015, we show that firms that have their financial statements audited have more exports than firms that do not have their financial st...

Full description

Saved in:
Bibliographic Details
Published in:Management science 2020-04, Vol.66 (4), p.1692-1716
Main Authors: Cheng, C. S. Agnes, Sun, Weihang, Ye, Kangtao, Zhang, Ning
Format: Article
Language:English
Subjects:
audit
Auditing
Auditing standards
Auditors
Audits
Causality
Closely held corporations
Companies
Discontinuity
Economic development
Emerging markets
Exports
Financial statements
international trade
private firms
regression discontinuity design
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We investigate the effect of auditing on promoting exports for private firms in emerging markets. Using a sample of private firms from 125 countries between 2006 and 2015, we show that firms that have their financial statements audited have more exports than firms that do not have their financial statements audited. To infer causality, we employ a regression discontinuity design (RDD). Using the discontinuity around the mandatory financial audit threshold, we find that firms slightly above the threshold have more exports than do firms that are slightly below the threshold. We also exploit the countries with exogenous regulation shocks to the mandatory audits. Using the difference-in-differences (DiD) design, we find that firms that are exempted from mandatory audits have less exports subsequent to the regulation change. Further analyses reveal that the effect of auditing is more pronounced in countries with higher audit quality and for firms with limited alternative information. Our findings suggest that the auditing function promotes exports—an important economic consequence for the global economic development. This paper was accepted by Shivaram Rajgopal, accounting.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2018.3254