Does Auditing Shape Global Value Chains? Evidence from PCAOB Inspections
Prof. Sibo LIU
Assistant Professor of Finance
Hong Kong Baptist University
Date: 24 October 2023 (Tuesday)
Time: 3:00 pm – 4:30 pm
Host: Prof. Rachel MA, Assistant Professor in Finance
Online registration: https://umac.au1.qualtrics.com/jfe/form/SV_6PXLSwAsXJ4BibI
This study investigates how auditing shapes the formation and performance along global value chains (GVCs). We focus on the effect of the Public Company Accounting Oversight Board’s (PCAOB) inspections on non-U.S. auditors, which induce higher information quality of the global exporters audited by these auditors. Using a unique, comprehensive dataset of U.S. waterway imports from global suppliers of 36 countries and adopting a Difference-in-Differences design, we find that PCAOB inspections not only lead to significantly more exports to U.S. buyers among treated suppliers, particularly for intermediate goods and capital goods, but treated suppliers also upgrade their product complexity and increase product R&D intensity. These results are stronger for suppliers with ex-ante lower reporting quality, for those that are not industry leaders, and for those located in countries with weaker institutions or higher geopolitical risk with the U.S. We further find that U.S. importers with a greater share of suppliers audited by PCAOB-inspected auditors experience improvements in firm value, profitability, and investments. PCAOB inspections also increase chain-level duration length between the importers and exporters. Overall, our findings suggest that regulatory oversight on auditing facilitates global exporters’ participation and upgrading in GVCs, enhances U.S. importers’ performance, and upholds the stability of GVCs.
Sibo Liu is an Assistant Professor of Finance in the School of Business at Hong Kong Baptist University (HKBU). Before joining HKBU, he worked in the Department of Economics at Lingnan University. His research interests include financial economics, financial technology, and political economy. His works appear in leading journals and major international conferences.