Real effects of the audit choice
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Shroff_Real effects.pdf
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397.13 KB
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Adobe PDF
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Author(s)
Kausar, Asad
Shroff, Nemit
White, Hal
Date Issued
November 6, 2018
Journal
Journal of Accounting and Economics
Publisher
Elsevier BV
Citation
Kausar, Asad, Nemit Shroff, and Hal White. “Real Effects of the Audit Choice.” Journal of Accounting and Economics 62, no. 1 (August 2016): 157–181.
Version
Original manuscript
Abstract
We hypothesize that the choice to obtain a financial statement audit provides external financiers with incremental information about the firm, which helps reduce information asymmetry and financing frictions. Using a natural experiment, we show that when external financiers observe a firm׳s choice to voluntarily obtain an audit, the firms obtaining an audit significantly increase their debt, investment, and operating performance, and become more responsive to their investment opportunities. Further, we find that these effects are stronger for firms that are financially constrained and weaker for firms with other means to reduce financing frictions. Overall, our evidence suggests that the audit choice conveys information to capital providers, which reduces financing frictions and improves performance.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
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DOI of Published Version
https://doi.org/10.1016/J.JACCECO.2015.10.001
