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Internationalization and Auditor Choice
Author(s) -
Tsao ShouMin,
Lu HsuehTien,
Keung Edmund C.
Publication year - 2017
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/jifm.12056
Subject(s) - internationalization , audit , agency (philosophy) , business , principal–agent problem , quality (philosophy) , quality audit , accounting , information asymmetry , finance , international trade , corporate governance , philosophy , epistemology
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.