Accounting Practice, Fiscal Decentralization and Corruption

Posted: 10 Jun 2019

See all articles by Frederick Kibon Changwony

Frederick Kibon Changwony

University of Stirling - Department of Accounting and Finance

Audrey Paterson

University of Aberdeen; University of Aberdeen

Date Written: May 24, 2019

Abstract

In prior studies, accounting and decentralization corruption solutions have so far been analysed in isolation. In this article, we connect these two strands of literature on corruption. Understanding this connection is important because weak financial accounting and reporting systems can inhibit monitoring incentives and thus reduce decentralization benefits in countering corruption. We argue that the effectiveness of decentralization as an anti-corruption barrier is complemented by the quality of the accounting practice in a country. Using multiple sources of data, we find that decentralization has a positive and increasing effect on reducing corruption among countries with a high-quality accounting practice. In contrast, decentralization has a negative and decreasing effect on reducing corruption among countries with weak-quality accounting practices. These findings are robust to alternative measures of accounting, decentralization and corruption and to endogeneity tests. Our findings demonstrate the crucial information role of accounting in enhancing decentralization monitoring mechanisms and in thereby reducing corruption.

Keywords: Accounting practice, Fiscal decentralization, Corruption, Public sector accounting, Financial reporting standards, IPSASs

JEL Classification: H11, H77, D73, M41

Suggested Citation

Changwony, Frederick Kibon and Paterson, Audrey, Accounting Practice, Fiscal Decentralization and Corruption (May 24, 2019). British Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3393522

Frederick Kibon Changwony (Contact Author)

University of Stirling - Department of Accounting and Finance ( email )

Stirling, Scotland FK9 4LA
United Kingdom
(44) 1786 467328 (Phone)

Audrey Paterson

University of Aberdeen ( email )

University of Aberdeen Business School
581 King Street
Aberdeen, Scotland AB24 5UD
United Kingdom

University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

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