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Auditors and Corporate Governance: Evidence from the Public Sector

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  • Mark Schelker

Abstract

Corporate auditors review and evaluate financial statements. To enhance independence the selection process and mandatory auditor rotation requirements have been debated intensively. The available empirical evidence is not conclusive and suffers from serious endogeneity problems. We propose learning from the public sector in which auditors play a similar role and present empirical evidence on the impact of auditor term length and rotation requirements on government performance at the US State level. We find evidence indicating that relatively short as well as extended auditor terms have a negative, and rotation requirements have a positive effect on state credit ratings.

Suggested Citation

  • Mark Schelker, 2008. "Auditors and Corporate Governance: Evidence from the Public Sector," CREMA Working Paper Series 2008-05, Center for Research in Economics, Management and the Arts (CREMA).
    • Handle: RePEc:cra:wpaper:2008-05
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    References listed on IDEAS

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    1. Baiman, S & Evans, Jh & Nagarajan, Nj, 1991. "Collusion In Auditing," Journal of Accounting Research, Wiley Blackwell, vol. 29(1), pages 1-18.
    2. Becht, Marco & Bolton, Patrick & Roell, Ailsa, 2003. "Corporate governance and control," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 1, pages 1-109, Elsevier.
    3. Antle, R, 1984. "Auditor Independence," Journal of Accounting Research, Wiley Blackwell, vol. 22(1), pages 1-20.
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    5. Becht, Marco & Bolton, Patrick & Röell, Ailsa, 2007. "Corporate Law and Governance," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 12, pages 829-943, Elsevier.
    6. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
    7. Alt, James E. & Lassen, David Dreyer, 2006. "Fiscal transparency, political parties, and debt in OECD countries," European Economic Review, Elsevier, vol. 50(6), pages 1403-1439, August.
    8. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    9. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
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    Cited by:

    1. Mark Schelker, 2016. "Unabhängige Finanzkontrolle in der Demokratie," CREMA Working Paper Series 2016-06, Center for Research in Economics, Management and the Arts (CREMA).
    2. Daniel J. Smith, 2020. "Turn-taking in office," Constitutional Political Economy, Springer, vol. 31(2), pages 205-226, June.
    3. Ali M. Gerged & Babikir Bechir Mahamat & Ibrahim K. Elmghaamez, 2020. "Did corporate governance compliance have an impact on auditor selection and quality? Evidence from FTSE 350," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 17(2), pages 51-60, September.

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    More about this item

    Keywords

    corporate governance; auditor; mandatory auditor rotation; public auditor;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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