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How does accounting and auditing regulations affect firm growth and cost of capital?
Högskolan Dalarna, Akademin Industri och samhälle, Mikrodataanalys.ORCID-id: 0000-0003-2952-7327
2018 (Engelska)Licentiatavhandling, sammanläggning (Övrigt vetenskapligt)
Abstract [en]

This thesis provides an understanding of how new audit regulation affect firm growth and how audits affect the cost of capital. To investigate the effect of audit reforms on employment growth, we exploited a Swedish reform made in November 2010 that gave certain firms the option to opt out of previously imposed statutory audits. We find that firms which fulfilled the requirements for voluntary auditing, compared to a control group of similar firms that did not, increased their employment growth rate by 0.39%. Furthermore, the reform was also exploited to investigate if audited financial statements add value for firms in the private debt market. We find that firms with audited financial statements, on average, save 1.26 percentage points on cost of debt compared to firms with unaudited financial statements. Thus, the reform creates a possibility for firms that have the ambition to grow in employment to do so by not auditing, and those who want to grow by investments in capital to do so by reducing the cost of such investments by auditing. However, the current ceiling of the reform is also likely to force some firms to operate at sub-optimal levels, those without having the option to opt out of audit even though they might not accrue any benefit from auditing, at least in the short-run. One can argue that is partly due to how institutions evolve, generally slower than other actors in the society do.

Ort, förlag, år, upplaga, sidor
Borlänge: Dalarna University, 2018.
Serie
Dalarna Licentiate Theses ; 8
Nyckelord [en]
New institutional economics, firm growth, small business economics, regulatory reform, audit reform, mandatory audit, audit complexity, SMEs, private limited firms
Nationell ämneskategori
Företagsekonomi Data- och informationsvetenskap
Forskningsämne
Forskningsprofiler 2009-2020, Komplexa system - mikrodataanalys
Identifikatorer
URN: urn:nbn:se:du-28408ISBN: 978-91-85941-78-0 (tryckt)OAI: oai:DiVA.org:du-28408DiVA, id: diva2:1242434
Presentation
2018-09-25, Sal 311, Högskolan Dalarna, Borlänge, 10:00 (Engelska)
Opponent
Handledare
Tillgänglig från: 2018-08-28 Skapad: 2018-08-28 Senast uppdaterad: 2023-08-17Bibliografiskt granskad
Delarbeten
1. Free to choose: Do voluntary audit reforms increase employment growth?
Öppna denna publikation i ny flik eller fönster >>Free to choose: Do voluntary audit reforms increase employment growth?
2018 (Engelska)Rapport (Refereegranskat)
Abstract [en]

Many European countries have abolished mandatory audits for small firms to reduce the regulatory and administrative burden for these firms. However, we still lack knowledge on whether such legislative changes affect employment growth for those firms that become free to choose to have external audits. We investigate this question using a Swedish reform that made audits voluntary for small firms fulfilling certain requirements. The reform created an almost ideal natural experiment, which we use to evaluate the effects of voluntary audits on employment growth for small firms using a difference-in-difference estimator. We find that firms which fulfilled the requirements for voluntary auditing, compared to a control group of similar firms that did not, increased their employment growth rate by 0.39%. This corresponds to 1,830 jobs being created in the year following the reform, suggesting that mandatory audits act as a growth barrier for small firms.

Serie
HUI Working Papers
Nyckelord
Firm growth; small business economics; regulatory reform; mandatory audit
Nationell ämneskategori
Företagsekonomi
Forskningsämne
Forskningsprofiler 2009-2020, Komplexa system - mikrodataanalys
Identifikatorer
urn:nbn:se:du-27352 (URN)
Tillgänglig från: 2018-03-07 Skapad: 2018-03-07 Senast uppdaterad: 2021-11-12Bibliografiskt granskad
2. Do audited firms have lower cost of debt?
Öppna denna publikation i ny flik eller fönster >>Do audited firms have lower cost of debt?
2018 (Engelska)Rapport (Övrigt vetenskapligt)
Abstract [en]

The purpose of this study is to investigate if audited financial statements add value for firms in the private debt market. Using an instrumental variable method, we find that firms with audited financial statements, on average, save 0.47 percentage points on the cost of debt compared to firms with unaudited financial statements. We also find that using the big, well-known auditing firms does not yield any additional cost of debt benefits. Lastly, we investigate if there are industries where alternative sources of information make auditing less valuable in reducing the cost of debt. Here we find that auditing is less important in lowering cost in one industry, agriculture, where one lender has a 74% market share and a 100-year history of lending to firms within that industry. As such, it seems that lenders having high exposure to a certain industry might act as an alternative to auditing in reducing the information asymmetry between the firm and the lender.

Förlag
s. 36
Serie
HUI Working Paper ; 132
Nyckelord
External Audit, Regulation, Agency Theory, Audit reform, Audit complexity, Cost of capital, Endogenous switching model, Private limited firms
Nationell ämneskategori
Företagsekonomi
Forskningsämne
Forskningsprofiler 2009-2020, Komplexa system - mikrodataanalys
Identifikatorer
urn:nbn:se:du-28407 (URN)
Tillgänglig från: 2018-08-28 Skapad: 2018-08-28 Senast uppdaterad: 2021-11-12Bibliografiskt granskad

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Huq, Asif M

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