The role of accounting standards and disclosure in alleviating corruption: a cross-country study

This study, relying on the notion of agency theory that the presence of information asymmetry causes higher agency costs, investigates the impact of financial disclosure and perceived strength of auditing and reporting standards on perceived corruption. Using data for 71 economies for the period 2010-2017 and utilising pooled ordinary least square (POLS) and two-step system GMM methods, this study finds that both financial disclosure and perceived strength of accounting and auditing standards significantly reduce perceived corruption. Moreover, developing/transition and common law countries may benefit more from better financial disclosure and perceived strong standards, but highly corrupt countries do not benefit from higher disclosure. Additional analysis shows that impact of perceived strong accounting standards on corruption is nonlinear. Audit propensity and quality moderates the relationship between the independent variables and perceived corruption. Mere adoption of accounting/auditing standards cannot cut corruption and perceived standard strength may be influenced by enforcement of standards.