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How does accounting and auditing regulations affect firm growth and cost of capital?
Dalarna University, School of Technology and Business Studies, Microdata Analysis.
2018 (English)Licentiate thesis, comprehensive summary (Other academic)
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.

Place, publisher, year, edition, pages
Borlänge: Dalarna University, 2018.
Series
Dalarna Licentiate Theses in Microdata Analysis ; 8
Keywords [en]
New institutional economics, firm growth, small business economics, regulatory reform, audit reform, mandatory audit, audit complexity, SMEs, private limited firms
National Category
Business Administration
Research subject
Complex Systems – Microdata Analysis
Identifiers
URN: urn:nbn:se:du-28408ISBN: 978-91-85941-78-0 (print)OAI: oai:DiVA.org:du-28408DiVA, id: diva2:1242434
Presentation
2018-09-25, Sal 311, Högskolan Dalarna, Borlänge, 10:00 (English)
Opponent
Supervisors
Available from: 2018-08-28 Created: 2018-08-28 Last updated: 2019-06-17Bibliographically approved
List of papers
1. Free to choose: Do voluntary audit reforms increase employment growth?
Open this publication in new window or tab >>Free to choose: Do voluntary audit reforms increase employment growth?
2018 (English)Report (Refereed)
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.

Series
HUI Working Papers
Keywords
Firm growth; small business economics; regulatory reform; mandatory audit
National Category
Business Administration
Research subject
Complex Systems – Microdata Analysis
Identifiers
urn:nbn:se:du-27352 (URN)
Available from: 2018-03-07 Created: 2018-03-07 Last updated: 2018-11-13Bibliographically approved
2. Do audited firms have lower cost of debt?
Open this publication in new window or tab >>Do audited firms have lower cost of debt?
2018 (English)Report (Other academic)
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 1.26 percentage points on cost of debt compared to firms with unaudited financial statements. We also find that using the big, well-known auditing firms does not yield additional cost of debt benefits. Lastly, we find that the effect of audit on cost of debt varies between industries. As such, we find that firms in industries that have been identified in previous studies to have a more complex information structure, and therefore more complex auditing process, also save more on cost of debt relative to other industries when audited.

Publisher
p. 36
Series
HUI Working Paper ; 132
Keywords
Audit reform, Audit complexity, SMEs, Private limited firms
National Category
Business Administration
Research subject
Complex Systems – Microdata Analysis
Identifiers
urn:nbn:se:du-28407 (URN)
Available from: 2018-08-28 Created: 2018-08-28 Last updated: 2018-11-13Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • ieee
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  • vancouver
  • chicago-author-date
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More styles
Language
  • de-DE
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  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
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  • asciidoc
  • rtf