The Role of Audit in Worldwide Access to Credit: Evidence from the World Bank Enterprise Surveys
68 Pages Posted: 13 Dec 2018 Last revised: 13 May 2023
Date Written: January 15, 2020
Abstract
We investigate the importance of external audit in explaining access to credit for two
types of constrained firms – those denied credit and those too discouraged to apply for credit.
We use a unique cross-country sample of private firms for which the choice to commission an
audit is voluntary. We document that the availability of audited financial statements reduces both
the probability of credit denial and the probability of discouragement from applying for credit.
We further document that the importance of audited financial statements in reducing credit
application costs and information asymmetry, and thereby increasing access to credit, is greater
in developing than in developed countries. These findings have important implications for
policymakers seeking to improve access to credit by small-and-medium enterprises.
Keywords: access to credit, audit, emerging markets, financial reporting quality, SMEs
JEL Classification: G21, G32, J71, L11, M13, M16, M41, M42
Suggested Citation: Suggested Citation