Adults in the room? The auditor and dividends in small firms: evidence from a natural experiment

Hakim Lyngstadås and Johannes Mauritzen ()
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Hakim Lyngstadås: BI Norwegian Business School
Johannes Mauritzen: NTNU Business School

Empirical Economics, 2024, vol. 67, issue 5, No 10, 2207-2240

Abstract: Abstract We examine the effect of auditing on dividends in small private firms. We hypothesize that auditing can constrain dividends by way of promoting accounting conservatism. We use register data on private Norwegian firms and random variation induced by the introduction of a policy allowing small private firms to forgo the use of an auditor to estimate the effect of auditing on dividend payout. Identification is obtained by a regression discontinuity around the arbitrary thresholds for the policy. Propensity score matching is used to create a balanced synthetic control. We consistently find that forgoing auditing led to a significant increase in dividends in small private firms.

Keywords: Auditing; Dividends; Private firms; Natural experiment; Regression discontinuity (search for similar items in EconPapers)
JEL-codes: C50 G35 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00181-024-02603-1

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