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Accounting practice, fiscal decentralization and corruption

Frederick Kibon Changwony and Audrey S. Paterson

The British Accounting Review, 2019, vol. 51, issue 5

Abstract: In prior studies, accounting and decentralization corruption solutions have so far been analysed in isolation. In this article, we connect these two strands of literature on corruption. Understanding this connection is important because weak financial accounting and reporting systems can inhibit monitoring incentives and thus reduce decentralization benefits in countering corruption. We argue that the effectiveness of decentralization as an anti-corruption barrier is complemented by the quality of the accounting practice in a country. Using multiple sources of data, we find that decentralization has a positive and increasing effect on reducing corruption among countries with a high-quality accounting practice. In contrast, decentralization has a negative and decreasing effect on reducing corruption among countries with weak-quality accounting practices. These findings are robust to alternative measures of accounting, decentralization and corruption and to endogeneity tests. Our findings demonstrate the crucial information role of accounting in enhancing decentralization monitoring mechanisms and in thereby reducing corruption.

Keywords: Accounting practice; Fiscal decentralization; Corruption; Public sector accounting; Financial reporting standards; IPSASs (search for similar items in EconPapers)
JEL-codes: H11 H77 D73 M41 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/

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