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Title: Real effects of the audit choice
Authors: Kausar, Asad
Shroff, Nemit
White, Hal
Keywords: Investment
Issue Date: 2016
Source: Kausar, A., Shroff, N., & White, H. (2016). Real effects of the audit choice. Journal of Accounting and Economics, 62(1), 157-181.
Series/Report no.: Journal of Accounting and Economics
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.
ISSN: 0165-4101
DOI: 10.1016/j.jacceco.2015.10.001
Rights: © 2015 Elsevier B.V. This is the author created version of a work that has been peer reviewed and accepted for publication by Journal of Accounting and Economics, Elsevier B.V. It incorporates referee’s comments but changes resulting from the publishing process, such as copyediting, structural formatting, may not be reflected in this document. The published version is available at: [].
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:NBS Journal Articles

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