Government Procurement and Financial Statements Certification: Evidence from Private Firms in Emerging Economies

56 Pages Posted: 11 Nov 2020

See all articles by Ole-Kristian Hope

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Shushu Jiang

National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN)

Dushyantkumar Vyas

University of Toronto - Rotman School of Management; University of Toronto at Mississauga

Date Written: September 24, 2020

Abstract

In this paper, we examine the monitoring role of government customers in emerging markets, a setting where public procurement is significant but the procurement institutions are weak. In these countries, financial statements certification could be an important mechanism for a private firm to facilitate contracting with governments. Employing a sample of private firms across 98 emerging economies, we first document in-depth private-firm audit regulations for each country. We find that firms are more likely to have financial statements certified by an external auditor when they have government contracts. We further find that the association is less pronounced when governments have weaker monitoring incentives — when suppliers are subject to monitoring from tax authorities or creditors, when government contracting officials receive bribes, and when government spending is less transparent. Additional analyses show that financial statements certification serves as a substitute for governments’ internal assurance procedures. We corroborate our inferences using different identification checks such as controlling for firm fixed effects, propensity-score matching, entropy balancing, changes specification, using the staggered adoption of an E-Procurement system to infer changes in governments’ monitoring incentives, and several other cross-sectional analyses.

Keywords: Government Procurement, Financial Statements Certification, Private Firms, Emerging Economies, Auditing, Corruption

JEL Classification: F30, G30, G38, M10, M16, M40, M41, M42, M48

Suggested Citation

Hope, Ole-Kristian and Jiang, Shushu and Vyas, Dushyantkumar, Government Procurement and Financial Statements Certification: Evidence from Private Firms in Emerging Economies (September 24, 2020). Available at SSRN: https://ssrn.com/abstract=3699078 or http://dx.doi.org/10.2139/ssrn.3699078

Ole-Kristian Hope (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Shushu Jiang

National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN) ( email )

Singapore

Dushyantkumar Vyas

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

University of Toronto at Mississauga ( email )

3359 Mississauga Rd N.
3205 William Davis Building
Mississauga, Ontario L5L 1C6
Canada

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