Internationalization and Auditor Choice

Shou Min Tsao, Hsueh Tien Lu, Edmund C. Keung

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

Prior research shows that internationalization increases information asymmetry and conflicts of interest between managers and outside investors, which lead to greater agency problems. Agency theory predicts a demand for higher quality auditors when agency problems are more severe. This study investigates whether the extent of internationalization influences auditor choice and whether audit quality has performance implications for internationalization. Using a set of U.S. firms from 2003 to 2009, we find the extent of internationalization positively related to audit quality. Furthermore, higher quality audits positively moderate the relation between internationalization and firm performance. Taken together, these results suggest that higher quality audit mitigates the agency problem associated with internationalization.

Original languageEnglish
Pages (from-to)235-273
Number of pages39
JournalJournal of International Financial Management and Accounting
Volume28
Issue number3
DOIs
StatePublished - Oct 2017

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