Public Auditor Oversight and Adjustment Speed of Capital Structure: Evidence from the PCAOB International Inspection Program

Abstract

This study examines the impact of the public auditor oversight by the Public Company Accounting Oversight Board (PCAOB) on non-US firms’ adjustment speed of capital structure. Using a difference-in-difference research design to analyse a sample of 104,880 firm-year observations in 32 non-US countries from 2002 to 2018, we find that non-US clients of PCAOB-inspected foreign auditors increase their adjustment speed of capital structure after their foreign auditors undergo the initial PCAOB inspections. Our results also suggest that the benefits of PCAOB oversight on management capital structure decisions are concentrated for non-US firms located in countries without a strict local auditor oversight system.

Keywords: Public Auditor Oversight; PCAOB International Inspection; Speed of Adjustment; Capital Structure

JEL Classification: M41; G32