Does Auditor Regulatory Oversight Affect Corporate Financing and Investment Decisions?
56 Pages Posted: 2 Oct 2015 Last revised: 22 Sep 2017
Date Written: September 19, 2017
This paper examines the real effects of auditor regulatory oversight on companies’ financing and investing policies. Using the Public Company Accounting Oversight Board’s (PCAOBs) international inspection program as a setting to generate within-country variation in auditor oversight, I find that companies respond to the increase in auditor oversight by issuing additional external capital amounting to 0.5% of assets and increasing capital expenditures by 0.3% of assets. These effects are larger for financially constrained companies and weaker for companies whose auditors’ are criticized by the PCAOB for having deficient engagement practices. This paper documents the importance of auditor oversight in mitigating external financing frictions.
Keywords: investment, debt capacity, financial accounting, reliability, real effects, PCAOB, audit, certification
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