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The Effect of Auditing on Promoting Exports: Evidence from Private Firms in Emerging Markets

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  • C. S. Agnes Cheng

    (School of Accounting and Finance, Hong Kong Polytechnic University, Kowloon, Hong Kong)

  • Weihang Sun

    (School of Accountancy, Shanghai University of Finance and Economics, 200433 Shanghai, China)

  • Kangtao Ye

    (School of Business, Renmin University of China, 100872 Beijing, China)

  • Ning Zhang

    (Smith School of Business, Queen’s University, Kingston, Ontario K7P 0H7, Canada)

Abstract

We investigate the effect of auditing on promoting exports for private firms in emerging markets. Using a sample of private firms from 125 countries between 2006 and 2015, we show that firms that have their financial statements audited have more exports than firms that do not have their financial statements audited. To infer causality, we employ a regression discontinuity design (RDD). Using the discontinuity around the mandatory financial audit threshold, we find that firms slightly above the threshold have more exports than do firms that are slightly below the threshold. We also exploit the countries with exogenous regulation shocks to the mandatory audits. Using the difference-in-differences (DiD) design, we find that firms that are exempted from mandatory audits have less exports subsequent to the regulation change. Further analyses reveal that the effect of auditing is more pronounced in countries with higher audit quality and for firms with limited alternative information. Our findings suggest that the auditing function promotes exports—an important economic consequence for the global economic development.

Suggested Citation

  • C. S. Agnes Cheng & Weihang Sun & Kangtao Ye & Ning Zhang, 2020. "The Effect of Auditing on Promoting Exports: Evidence from Private Firms in Emerging Markets," Management Science, INFORMS, vol. 66(4), pages 1692-1716, April.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:4:p:1692-1716
    DOI: 10.1287/mnsc.2018.3254
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    2. Liu,Yu & Peng,Mike W. & Wei,Zuobao & Xu,Jian & Xu,L. Colin, 2021. "Organizational Resources, Country Institutions, and National Culture behind Firm Survival and Growth during COVID-19," Policy Research Working Paper Series 9633, The World Bank.
    3. Liu, Tingting & Liu, Yu & Ullah, Barkat & Wei, Zuobao & Xu, Lixin Colin, 2021. "The dark side of transparency in developing countries: The link between financial reporting practices and corruption," Journal of Corporate Finance, Elsevier, vol. 66(C).
    4. Jiawen Chen & Linlin Liu, 2023. "A historical perspective on informal institutional and international entrepreneurship," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-12, December.
    5. Xingqiang Du & Liang Xiao & Yingjie Du, 2023. "Does CEO–Auditor Dialect Connectedness Trigger Audit Opinion Shopping? Evidence from China," Journal of Business Ethics, Springer, vol. 184(2), pages 391-426, May.
    6. Xu, Jian & Liu, Yu & Abdoh, Hussein, 2022. "Foreign ownership and productivity," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 624-642.
    7. Fu, Chenyi & Ma, Shoufeng & Zhu, Ning & He, Qiao-Chu & Yang, Hai, 2022. "Bike-sharing inventory management for market expansion," Transportation Research Part B: Methodological, Elsevier, vol. 162(C), pages 28-54.
    8. Yongliang Wu & Zihui Li & Min Zhang & Shengbao Zhai, 2023. "Auditor Assignments and Audit Quality," Australian Accounting Review, CPA Australia, vol. 33(2), pages 160-187, June.
    9. Kuo, Nan-Ting & Lee, Cheng-Few, 2024. "Social trust and the choices to provide audited financial statements by private firms in emerging markets," The British Accounting Review, Elsevier, vol. 56(2).

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