Abstract
We investigate the influence of foreign institutional investors on firms’ auditor choices in an international setting. Foreign institutional investors are likely to demand high-quality audits to mitigate the information asymmetry they face and facilitate their external monitoring when they invest overseas. On the other hand, foreign institutional investors not only face difficulties in monitoring overseas firms in general but also have the limited ability to influence their auditor choices in particular. Using a large sample of 111,078 firm-year observations from 40 non-US countries for the period of 2001–2011, we find that firms with higher foreign institutional ownership are more likely to hire Big 4 auditors. To address the endogeneity concern, we show that our findings are robust to the use of identification strategies exploiting the exogenous variation in foreign institutional ownership following MSCI index additions, two-stage least squares regressions, and change-on-change regressions. More importantly, we further explore cross-sectional/cross-country variations in the relation between foreign institutional investors and auditor choice and find that this relation is stronger (a) when foreign institutional investors are from countries with stronger governance institutions and (b) when the investee firms are located in countries with higher information asymmetries. Overall, our findings suggest that cross-border institutional investment plays an important role in influencing firms’ auditor choices and improving the information environment of firms across different countries around the world.
Résumé
Nous étudions l’influence des investisseurs institutionnels étrangers sur les choix des cabinets d’audit dans un contexte international. Les investisseurs institutionnels étrangers sont susceptibles d’exiger des audits de haute qualité pour atténuer l’asymétrie d’information à laquelle ils sont confrontés et faciliter leur contrôle externe lorsqu’ils investissent à l’étranger. D’un autre côté, les investisseurs institutionnels étrangers ont non seulement des difficultés à surveiller les entreprises étrangères en général, mais ont aussi une capacité limitée à influencer les choix de leurs auditeurs en particulier. Utilisant un large échantillon de 111 078 observations d’entreprises-années provenant de 40 pays non-américains pour la période 2001–2011, nous constatons que les entreprises ayant une plus forte participation institutionnelle étrangère sont plus susceptibles d’embaucher des auditeurs du Big 4. Pour répondre au problème d’endogénéité, nous montrons que nos résultats sont solides face à l’utilisation des stratégies d’identification exploitant la variation exogène de la propriété institutionnelle étrangère suite aux ajouts d’indices MSCI, aux régressions des moindres carrés en deux étapes et aux régressions de changement sur changement. Plus important encore, nous explorons davantage les variations transversales/transnationales dans la relation entre les investisseurs institutionnels étrangers et le choix des auditeurs, et nous constatons que cette relation est plus forte (a) lorsque les investisseurs institutionnels étrangers proviennent de pays dotés d’institutions de gouvernance plus solides et (b) lorsque les entreprises détenues sont situées dans des pays présentant des asymétries d’information plus importantes. Dans l’ensemble, nos résultats suggèrent que l’investissement institutionnel transfrontalier joue un rôle important en influençant les choix des auditeurs des entreprises et en améliorant l’environnement informationnel des entreprises dans différents pays du monde.
Resumen
Investigamos la influencia de los inversionistas institucionales extranjeros en las selecciones de auditores de las empresas en un entorno internacional. Es probable que los inversionistas institucionales extranjeros exijan auditorías de alta calidad para mitigar la asimetría de información que enfrentan y facilitar su monitoreo externo cuando invierten en el exterior. Por otra parte, los inversionistas institucionales extranjeros no solo enfrentan dificultades para monitorear empresas extranjeras en general, sino que también tienen la capacidad limitada de influir en la selección de sus auditores en particular. Usando una gran muestra de 111,078 observaciones de empresa-año de 40 países no estadounidenses para el período 2001–2011, encontramos que las empresas con mayor propiedad institucional extranjera son más propensas a contratar a los auditores de las 4 grandes (Big 4). Para abordar el problema de la endogeneidad, demostramos que nuestros hallazgos son robustos al uso de estrategias de identificación que explotan la variación exógena en la propiedad institucional extranjera siguiendo las adiciones al índice MSCI, las regresiones de mínimos cuadrados en dos etapas y las regresiones de cambio en el cambio. Aún importante, exploramos más allá las variaciones transversales y entre países en la relación entre inversores institucionales extranjeros y la selección del auditor y encontramos que esta relación es más fuerte (a) cuando los inversores institucionales extranjeros provienen de países con instituciones de gobierno más sólidas y (b) cuando las empresas participadas están ubicadas en países con mayor asimetría de información. En general, nuestros hallazgos sugieren que la inversión institucional transfronteriza juega un papel importante al influir en las elecciones de los auditores de las empresas y mejorar el entorno de información de las empresas en diferentes países del mundo.
Resumo
Investigamos a influência de investidores institucionais estrangeiros na escolha do auditor de empresas em um cenário internacional. Investidores institucionais estrangeiros provavelmente exigem auditorias de alta qualidade para mitigar a assimetria de informações que enfrentam e facilitar seu monitoramento externo quando investem no exterior. Por outro lado, os investidores institucionais estrangeiros não apenas enfrentam dificuldades no monitoramento de empresas estrangeiras em geral, mas também têm capacidade limitada para influenciar escolhas de auditor em particular. Usando uma grande amostra de 111.078 observações empresa-ano de 40 países não norte-americanos para o período de 2001–2011, descobrimos que empresas com mais pronunciada propriedade institucional estrangeira são mais propensas a contratar auditores das quatro grandes. Para tratar da preocupação com a endogeneidade, mostramos que nossos resultados são robustos ao uso de estratégias de identificação que exploram a variação exógena na propriedade institucional estrangeira após inclusões ao índice MSCI, regressões de mínimos quadrados de dois estágios e regressões do tipo change-on-change. Mais importante ainda, exploramos ainda variações transversais e entre países na relação entre investidores institucionais estrangeiros e a escolha do auditor e descobrimos que essa relação é mais forte: (a) quando investidores institucionais estrangeiros são de países com instituições de governança mais fortes e (b) quando as empresas investidas estão localizadas em países com maior assimetria de informação. No geral, nossas descobertas sugerem que o investimento institucional transfronteiriço desempenha um papel importante em influenciar as escolhas do auditor das empresas e melhorar o ambiente de informações das empresas em diferentes países ao redor do mundo.
摘要
我们调查了国外机构投资者对国际背景下企业审计师选择的影响。外国机构投资者有可能要求高质量的审计, 以减轻他们面临的信息不对称, 并促进他们在海外投资时的外部监管。另一方面,外国机构投资者不仅在监管海外公司方面面临困难, 而且特别在影响审计师选择方面的能力是有限的。我们使用2001至2011年间来自40个非美国国家的111,078个公司年的观察值的大样本, 发现拥有较大外国机构所有权的公司更有可能聘请四大公司的审计师。为了解决内生性问题,我们显示我们的研究结果对MSCI指数增加, 两阶段最小二乘回归和变对变回归后利用外国机构所有权的外生变量的识别策略是稳健的。更重要的是, 我们进一步探讨了外国机构投资者与审计师选择之间的关系的跨部门/跨国差异, 并发现这种关系在如下情况下更强:(a)当外国机构投资者来自具有较强治理制度的国家时, 以及(b)当被投资公司地处信息不对称程度较高的国家。总体而言, 我们的研究结果表明, 跨境机构投资在影响公司审计师择和改善全球不同国家公司的信息环境方面发挥着重要的作用。
Similar content being viewed by others
REFERENCES
Aggarwal, R., Erel, I., Ferreira, M., & Matos, P. 2011. Does governance travel around the world? Evidence from institutional investors. Journal of Financial Economics, 100(1): 154–181.
Aggarwal, R., Klapper, L., & Wysocki, P. D. 2005. Portfolio preferences of foreign institutional investors. Journal of Banking & Finance, 29(12): 2919–2946.
Aguilera, R. V., Desender, K. A., Lamy, M. L. P., & Lee, J. H. 2017. The governance impact of a changing investor landscape. Journal of International Business Studies, 48(2): 195–221.
Aier, J. K., Chen, L., & Pevzner, M. 2014. Debtholders’ demand for conservatism: Evidence from changes in directors’ fiduciary duties. Journal of Accounting Research, 52(5): 993–1027.
Armstrong, C. S., Balakrishnan, K., & Cohen, D. 2012. Corporate governance and the information environment: Evidence from state antitakeover laws. Journal of Accounting and Economics, 53(1): 185–204.
Audit Analytics. 2014. Public Company Auditor Market Share, http://www.auditanalytics.com/blog/public-company-auditor-market-share-2013-update.
Ayers, B. C., Ramalingegowda, S., & Yeung, P. E. 2011. Hometown advantage: The effects of monitoring institution location on financial reporting discretion. Journal of Accounting and Economics, 52(1): 41–61.
Baik, B., Kang, J., Kim, J., & Lee, J. 2013. The liability of foreignness in international equity investments: Evidence from the US stock market. Journal of International Business Studies, 44(4): 391–411.
Ball, R., Jayaraman, S., & Shivakumar, L. 2012. Audited financial reporting and voluntary disclosure as complements: A test of the confirmation hypothesis. Journal of Accounting and Economics, 53(1): 136–166.
Barth, M., Landsman, W., & Lang, M. 2008. International accounting standards and accounting quality. Journal of Accounting Research, 46(3): 467–498.
Bartram, S., Griffin, J., Lim, T., & Ng, D. 2015. How important are foreign ownership linkages for international stock returns. Review of Financial Studies, 28(11): 3036–3072.
Becker, C. L., DeFond, M. L., Jiambalvo, J., & Subramanyam, K. R. 1998. The effect of audit quality on earnings management. Contemporary Accounting Research, 15(1): 1–24.
Bena, J., Ferreira, M. A., Matos, P. P., & Pires, P. 2017. Are foreign investors locusts? The long-term effects of foreign institutional ownership. Journal of Financial Economics, 126(1): 122–146.
Boone, A. I., & White, J. T. 2014. The effect of institutional ownership on firm transparency and information production. Journal of Financial Economics, 117(3): 508–533.
Buchner, A., Espenlaub, S., Khurshed, A., & Mohamed, A. 2018. Cross-border venture capital investments: The impact of foreignness on returns. Journal of International Business Studies, forthcoming.
Bushee, B. J., & Noe, C. F. 2000. Corporate disclosure practices, institutional investors, and stock return volatility. Journal of Accounting Research, 38: 171–202.
Bushman, R. M., & Piotroski, J. D. 2006. Financial reporting incentives for conservative accounting: The influence of legal and political institutions. Journal of Accounting and Economics, 42(1): 107–148.
Bushman, R., & Smith, A. 2001. Financial accounting information and corporate governance. Journal of Accounting and Economics, 32(1–3): 237–334.
Carson, E. 2009. Industry specialization by global audit firm networks. The Accounting Review, 84(2): 355–382.
Chang, X., Dasgupta, S., & Hilary, G. 2009. The effect of auditor quality on financing decisions. The Accounting Review, 84(4): 1085–1117.
Choe, H., Kho, B., & Stulz, R. M. 2005. Do domestic investors have an edge? The trading experience of foreign investors in Korea. Review of Financial Studies, 18(3): 795–829.
Choi, J. H., Kim, J.-B., Liu, X., & Simunic, D. 2008. Audit pricing, legal liability regimes, and Big 4 premiums: Theory and cross-country evidence. Contemporary Accounting Research, 25(1): 55–99.
Choi, J. H., Kim, J.-B., Liu, X., & Simunic, D. 2009. Cross-listing audit fee premium: Theory and evidence. The Accounting Review, 84(5): 1429–1463.
Choi, J. H., & Wong, T. J. 2007. Auditors’ governance functions and legal environments: An international investigation. Contemporary Accounting Research, 24(1): 13–46.
Chou, J., Zaiats, N., & Zhang, B. 2014. Does auditor choice matter to foreign investors? Evidence from foreign mutual funds worldwide. Journal of Banking & Finance, 46: 1–20.
Covrig, V. M., DeFond, M. L., & Hung, M. 2007. Home bias, foreign mutual fund holdings, and the voluntary adoption of international accounting standards. Journal of Accounting Research, 45(1): 41–70.
Cui, C. 2016. MSCI delays adding China’s local currency shares to emerging-market index. Wall Street Journal, http://www.wsj.com/articles/msci-delays-adding-chinas-local-currency-shares-to-emerging-market-index-1465939738.
Cumming, D., Filatotchev, I., Knill, A., Reeb, D. M., & Senbet, L. 2017. Law, finance, and the international mobility of corporate governance. International Business Studies, 48(2): 123–147.
Dahlquist, M., & Robertsson, G. 2001. Direct foreign ownership, institutional investors, and firm characteristics. Journal of Financial Economics, 59(3): 413–440.
DeFond, M., Hu, X., Hung, M., & Li, S. 2011. The impact of mandatory IFRS adoption on foreign mutual fund ownership: The role of comparability. Journal of Accounting and Economics, 51(3): 240–258.
DeFond, M., & Zhang, J. 2014. A review of archival auditing research. Journal of Accounting and Economics, 58(2): 275–326.
Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. 2008. The law and economics of self-dealing. Journal of Financial Economics, 88(3): 430–465.
El Ghoul, S., Guedhami, O., Pittman, J., & Rizeanu, S. 2016. Cross-country evidence on the importance of auditor choice to corporate debt maturity. Contemporary Accounting Research, 33(2): 718–751.
Eshleman, J. D., & Guo, P. 2014. Do Big 4 auditors provide higher audit quality after controlling for the endogenous choice of auditor? Auditing: A Journal of Practice & Theory, 33(4): 197–219.
Fan, J. P., & Wong, T. J. 2005. Do external auditors perform a corporate governance role in emerging markets? Evidence from East Asia. Journal of Accounting Research, 43(1): 35–72.
Fang, V. W., Maffett, M., & Zhang, B. 2015. Foreign institutional ownership and the global convergence of financial reporting practices. Journal of Accounting Research, 53(3): 593–631.
Ferreira, M. A., Massa, M., & Matos, P. 2010. Shareholders at the gate? Institutional investors and cross-border mergers and acquisitions. Review of Financial Studies, 23(2): 601–644.
Ferreira, M. A., & Matos, P. 2008. The colors of investors’ money: The role of institutional investors around the world. Journal of Financial Economics, 88(3): 499–533.
Francis, J. R., Maydew, E. L., & Sparks, H. C. 1999. The role of Big 6 auditors in the credible reporting of accruals. Auditing: A Journal of Practice & Theory, 18(2): 17–34.
Francis, J. R., Richard, C., & Vanstraelen, A. 2009. Assessing France’s joint audit requirement: Are two heads better than one? Auditing: A Journal of Practice & Theory, 28(2): 35–63.
Francis, J. R., & Wilson, E. R. 1988. Auditor changes: A joint test of theories relating to agency costs and auditor differentiation. The Accounting Review, 63(4): 663–682.
Fung, S., Raman, K. K., & Zhu, X. K. 2017. Does the PCAOB’s international inspection program improve audit quality for non-US-listed foreign clients? Journal of Accounting and Economics, 64(1): 15–36.
Fung, S., Zhou, G., & Zhu, X. K. 2016. Monitor objectivity with important clients: Evidence from auditor opinions around the world. Journal of International Business Studies, 47(3): 263–294.
Gao, G.Y., Wang, D.T., & Che, Y. 2018. Impact of historical conflict on FDI location and performance: Japanese investment in China. Journal of International Business Studies, forthcoming.
Gillan, S., & Starks, L. T. 2003. Corporate governance, corporate ownership, and the role of institutional investors: A global perspective. Journal of Applied Finance, 13(2): 4–22.
Guedhami, O., Pittman, J. A., & Saffar, W. 2009. Auditor choice in privatized firms: Empirical evidence on the role of state and foreign owners. Journal of Accounting and Economics, 48(2): 151–171.
Guedhami, O., Pittman, J. A., & Saffar, W. 2014. Auditor choice in politically connected firms. Journal of Accounting Research, 52(1): 107–162.
Gul, F. A., Zhou, G. S., & Zhu, X. K. 2013. Investor protection, firm informational problems, Big N auditors, and cost of debt around the world. Auditing: A Journal of Practice & Theory, 32(3): 1–30.
Hail, L., & Leuz, C. 2006. International differences in the cost of equity capital: Do legal institutions and securities regulation matter? Journal of Accounting Research, 44(3): 485–531.
Han, S., Kang, T., & Rees, L. 2013. The association between institutional ownership and audit properties. Asia-Pacific Journal of Accounting & Economics, 20(2): 199–222.
He, X., Rui, O., Zheng, L., & Zhu, H. 2014. Foreign ownership and auditor choice. Journal of Accounting and Public Policy, 33(4): 401–418.
Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4): 305–360.
Kang, J., & Stulz, R.M. 1997. Is bank-centered corporate governance worth it? A cross-sectional analysis of the performance of Japanese firms during the asset price deflation. National Bureau of Economic Research.
Khalil, S., Magnan, M. L., & Cohen, J. R. 2008. Dual-class shares and audit pricing: Evidence from the Canadian markets. Auditing: A Journal of Practice & Theory, 27(2): 199–216.
Khanna, T., & Palepu, K. G. 2004. Globalization and convergence in corporate governance: Evidence from Infosys and the Indian software industry. Journal of International Business Studies, 35(6): 484–507.
Kim, J.-B., Lee, J., & Park, J. C. 2015. Audit quality and the market value of cash holdings: The case of office-level auditor industry specialization. Auditing: A Journal of Practice and Theory, 34(2): 27–57.
Kim, J.-B., Liu, X., & Zheng, L. 2012. The impact of mandatory IFRS adoption on audit fees: Theory and evidence. The Accounting Review, 87(6): 2061–2094.
Kim, J.-B., & Shi, H. 2012. IFRS reporting, firm-specific information flows, and institutional environment: International evidence. Review of Accounting Studies, 17(3): 475–517.
Kim, J.-B., Simunic, D. A., Stein, M. T., & Yi, C. H. 2011. Voluntary audit and the cost of debt capital for privately held firms: Korean evidence. Contemporary Accounting Research, 26(2): 585–615.
Knechel, W., Krishnan, G., Pevzner, M., Shefchik, L., & Velury, U. 2012. Audit quality: Insights from the academic literature. Auditing: A Journal of Practice & Theory, 32(sp1): 385–421.
Krishnan, J., Krishnan, J., & Song, H. 2017. PCAOB international inspections and audit quality. The Accounting Review, 92(5): 143–165.
La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. 2006. What works in securities laws? Journal of Finance, 61(1): 1–32.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. 1999. The quality of government. Journal of Law Economics and Organization, 15(1): 222–279.
Lamoreaux, P. 2016. Does PCAOB inspection access improve audit quality? An examination of foreign firms listed in the United States. Journal of Accounting and Economics, 61(2): 313–337.
Lennox, C. 2005. Management ownership and audit firm size. Contemporary Accounting Research, 22(1): 205–227.
Leuz, C., Lins, K. V., & Warnock, F. E. 2010. Do foreigners invest less in poorly governed firms? Review of Financial Studies, 23(3): 3245–3285.
Leuz, C., Nanda, D., & Wysocki, P. 2003. Investor protection and earnings management: An international comparison. Journal of Financial Economics, 69(3): 505–527.
Liu, C., Chung, C., Sul, H., & Wang, K. 2018. Does hometown advantage matter? The case of institutional blockholder monitoring on earnings management in Korea. Journal of International Business Studies, 49(2): 192–221.
Lobo, G., & Zhao, Y. 2013. Relation between audit effort and financial report misstatements: Evidence from quarterly and annual restatements. The Accounting Review, 88(4): 1385–1412.
Lohade, N. 2016. MSCI says Saudi stock market needs easier access for foreigners. Wall Street Journal, http://www.wsj.com/articles/msci-says-saudi-stock-market-needs-easier-access-for-foreigners-1465952442.
Luong, L., Moshirian, F., Nguyen, H., Tian, X., & Zhang, B. 2017. How do foreign institutional investors enhance firm innovation? Journal of Financial and Quantitative Analysis, 52(4): 1449–1490.
Maffett, M. 2012. Financial reporting opacity and informed trading by international institutional investors. Journal of Accounting and Economics, 54(2–3): 201–220.
Mansi, S. A., Maxwell, W. F., & Miller, D. P. 2004. Does auditor quality and tenure matter to investors? Evidence from the bond market. Journal of Accounting Research, 42(4): 755–793.
Massa, M., & Zhang, L. 2018. Does corporate hedging attract foreign institutional investors? Evidence from international firms. Journal of International Business Studies, forthcoming.
Miletkov, M., Poulsen, A., & Wintoki, M. B. 2017. Foreign independent directors and the quality of legal institutions. Journal of International Business Studies, 48(2): 267–292.
MSCI. 2015. MSCI global investable market indexes methodology. https://www.msci.com/eqb/methodology/meth_docs/MSCI_Nov2015_GIMIMethodology.pdf.
Petersen, M. A. 2009. Estimating standard errors in finance panel data sets: Comparing approaches. Review of Financial Studies, 22(1): 435–480.
Pittman, J. A., & Fortin, S. 2004. Auditor choice and the cost of debt capital for newly public firms. Journal of Accounting and Economics, 37(1): 113–136.
Shroff, N. 2015. Real effects of financial reporting quality and credibility: Evidence from the PCAOB regulatory regime. Working paper.
Skinner, D. J., & Srinivasan, S. 2012. Audit quality and auditor reputation: Evidence from Japan. The Accounting Review, 87(5): 1737–1765.
Teoh, S. H., & Wong, T. J. 1993. Perceived auditor quality and the earnings response coefficient. The Accounting Review, 68(2): 346–366.
Tsang, A., Xie, F., & Xin, X. 2015. Foreign institutional investors and voluntary disclosure around the world. Working paper.
Watts, R. L., & Zimmerman, J. L. 1980. On the irrelevance of replacement cost disclosures for security prices. Journal of Accounting and Economics, 2(2): 95–106.
Weber, J., Willenborg, M., & Zhang, J. 2008. Does auditor reputation matter? The case of KPMG Germany and ComROAD AG. Journal of Accounting Research, 46(4): 941–972.
Yu, G., & Wahid, A. S. 2014. Accounting standards and international portfolio holdings. The Accounting Review, 89(5): 1895–1930.
ACKNOWLEDGEMENTS
We gratefully acknowledge comments and suggestions from Gary Biddle (editor) and three anonymous referees, conference participants at the American Accounting Association’s 2017 Auditing Section Midyear Meeting, as well as from Ph.D. seminar/workshop participants from Fudan University (Shanghai, China), Sun Yat-sen University (Guangzhou, China), and the University of Waterloo (Ontario, Canada). Jeong-Bon Kim and Mikhail Pevzner also gratefully acknowledge the assistance they received through their respective roles as J. Page R. Wadsworth Chair in Accounting and Finance at the University of Waterloo’s School of Accounting and Finance and EY Chair in Accounting at the University of Baltimore’s Merrick School of Business. Xiangang Xin gratefully acknowledges the financial support from the SRG grant of City University of Hong Kong (7004524).
Author information
Authors and Affiliations
Corresponding author
Additional information
Accepted by Gary Biddle, Area Editor, 11 April 2018. This article has been with the authors for four revisions.
Appendix: Variable Definitions
Appendix: Variable Definitions
Variable | Definition |
---|---|
Firm-level variables | |
Big4 | An indicator variable equal to 1 if a firm’s auditor is a Big4 auditor, and 0 otherwise |
SwitchtoBig4 | An indicator variable equal to 1 if a firm has a Big 4 auditor in year t and non-Big 4 auditor in year t−1, and 0 otherwise |
Audit fee | The log of audit fee paid by a firm to the auditors |
Industry-specialized auditors | An indicator variable equal to 1 if a firm’s auditor is an industry-specialized auditor and 0 otherwise. An auditor is industry specialized if the auditor is the national industry leader, based on the percentage of total assets audited within an industry |
PCAOB-inspected auditors | An indicator variable equal to 1 for audit firms that have been inspected by PCAOB, and 0 otherwise |
FIO | Percentage of shares (end of year) held by all FIIs |
FIO_NUS | Percentage of shares (end of year) held by non-US FIIs |
FIO_HighGov | Percentage of shares (end of year) held by FIIs originating from countries with stronger governance institutions. Strength of governance institutions is measured according to (a) legal origins, (b) investor protection, (c) disclosure requirement, and (d) security regulations |
FIO_LowGov | Percentage of shares (end of year) held by FIIs originating from countries with weaker governance institutions. Strength of governance institutions is measured according to (a) legal origins, (b) investor protection, (c) disclosure requirement, and (d) security regulations |
DIO | Percentage of shares (end of year) held by all DIIs |
Size | The log of a firm’s total assets in US dollars |
InvRec | The sum of inventories and receivables divided by total assets |
Capex | Capital intensity measured by long-term assets divided by total assets |
Segs | Total number of business segments reported by a firm |
ROA | Net income divided by total assets |
Leverage | Ratio of total debt to total assets |
Fsale | Foreign sales as percentage of total sales |
Growth | Asset growth, measured as total assets minus total assets of last year divided by total assets last year |
Finance | An indicator variable equal to 1 if long-term debt increased by 20% or more or the number of shares outstanding increased by 10% or more, and 0 otherwise |
Country-Level Variables | |
LGDP | The log of GDP per capita in US dollars |
GDPGrw | GDP growth, calculated as GDP in year t minus GDP in year t−1, divided by GDP in year t−1 |
Inflation | Inflation rate, measured as the consumer price index which reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services |
Earning management | The earnings management and opacity score developed by Leuz et al. (2003) |
Legal origin | An indicator variable equal to 1 if the origins of the laws of a country are common law, and 0 otherwise |
Investor protection | The anti-director rights index from Djankov et al. (2008) |
Disclosure requirement | The disclosure requirement index from La Porta et al. (2006) |
Security regulation | The composite average of the disclosure requirement index, the liability standard index, and the public enforcement index from La Porta et al. (2006) |
Rights and permissions
About this article
Cite this article
Kim, JB., Pevzner, M. & Xin, X. Foreign institutional ownership and auditor choice: Evidence from worldwide institutional ownership. J Int Bus Stud 50, 83–110 (2019). https://doi.org/10.1057/s41267-018-0160-x
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1057/s41267-018-0160-x