PCAOB International Inspections and US Companies’ Exports

Co-authors:

Inder K. Khurana (University of Missouri), K. K. Raman (The University of Texas at San Antonio) and Byongwook (Brian) Yun (University of Missouri)

Abstract:

We examine the impact of the Public Company Accounting Oversight Board (PCAOB) international inspection program on US companies’ exports. Our difference-in-difference analyses suggest that following the initial PCAOB international inspection in a country abroad, US companies experienced an increase in exports to (but not imports from) that country. We also find that following the initial PCAOB international inspection in a country abroad, companies in that country report higher accounts payable, consistent with the initial PCAOB inspection facilitating trade credit financing. The effect on US companies’ exports is stronger for industries requiring more relationship-specific investments and for countries with less ex-ante transparency, weak auditor oversight, low social trust, and low trade network centrality. Collectively, our findings suggest that the initial PCAOB inspection in a country, by increasing the quality/comparability of financial reporting in that country is followed by an increase in US companies’ exports. Our findings complement prior research on the PCAOB international inspection program which to date has focused exclusively on non-US companies, by identifying a positive externality (unintended benefit) for US companies from the initial PCAOB international inspections.