Real effects of the audit choice

Asad Kausar, Nemit Shroff, Hal Derric White

Research output: Contribution to journalArticle

27 Citations (Scopus)

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.

Original languageEnglish (US)
Pages (from-to)157-181
Number of pages25
JournalJournal of Accounting and Economics
Volume62
Issue number1
DOIs
StatePublished - Aug 1 2016

Fingerprint

Audit
Financing
Friction
Investment opportunities
Investment performance
Information asymmetry
Operating performance
Financial statements
External audit
Incremental
Natural experiment
Debt

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Kausar, Asad ; Shroff, Nemit ; White, Hal Derric. / Real effects of the audit choice. In: Journal of Accounting and Economics. 2016 ; Vol. 62, No. 1. pp. 157-181.
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Real effects of the audit choice. / Kausar, Asad; Shroff, Nemit; White, Hal Derric.

In: Journal of Accounting and Economics, Vol. 62, No. 1, 01.08.2016, p. 157-181.

Research output: Contribution to journalArticle

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