Are You Being Fooled? Audit Quality and Quality of Government
22 Pages Posted: 14 Jan 2004
Date Written: January 2004
Abstract
We investigate the impact of audit quality on the quality of government in a large cross-section of countries. We assess government performance using measures of six dimensions of governance, namely, voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption. We assess audit quality by a variable indicating the percentage of firms in the country audited by the big 5 accounting firms. We find that countries that have a high level of audit quality exhibit superior government performance. The results based on 33 countries, persist after controlling for quality of life. Quality of life had a positive relationship with government performance. The importance of audit quality in explaining the variation in government performance across countries shed light on the strong role of auditing in society.
Keywords: Audit quality, government performance, quality of life
JEL Classification: M41, M43, M45, M47, M49
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