An Examination of Substitution among Monitoring Devices: The Case of Internal and External Audit Expenditures

An Examination of Substitution among Monitoring Devices: The Case of Internal and External Audit... Much of the agency literature assumes that various monitoring devices are partial substitutes in reducing total agency costs. In particular, internal and external auditing often are characterized as monitoring devices that should be partial substitutes. We argue that reliable evidence of this relation is lacking because prior studies using cross-sectional archival data have not carefully considered the implications of microeconomic theory of substitution for the models estimated. Our analysis leads to a reexamination of the relation using time-series data. We find no evidence that systematic substitution of internal for external auditing (or vice versa) occurred during the period 1989–1993. Further analysis indicates that the relative prices of internal and external auditing inputs did not change during the period. Therefore a necessary condition for substitution to occur did not exist. Although we do not detect substitution with our sample, the analysis and methodology we develop contribute to the literature by enhancing researchers’ understanding of substitution among monitoring methods. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

An Examination of Substitution among Monitoring Devices: The Case of Internal and External Audit Expenditures

Loading next page...
 
/lp/springer_journal/an-examination-of-substitution-among-monitoring-devices-the-case-of-wPSzQZtD2f
Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008365720747
Publisher site
See Article on Publisher Site

Abstract

Much of the agency literature assumes that various monitoring devices are partial substitutes in reducing total agency costs. In particular, internal and external auditing often are characterized as monitoring devices that should be partial substitutes. We argue that reliable evidence of this relation is lacking because prior studies using cross-sectional archival data have not carefully considered the implications of microeconomic theory of substitution for the models estimated. Our analysis leads to a reexamination of the relation using time-series data. We find no evidence that systematic substitution of internal for external auditing (or vice versa) occurred during the period 1989–1993. Further analysis indicates that the relative prices of internal and external auditing inputs did not change during the period. Therefore a necessary condition for substitution to occur did not exist. Although we do not detect substitution with our sample, the analysis and methodology we develop contribute to the literature by enhancing researchers’ understanding of substitution among monitoring methods.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 8, 2004

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create lists to
organize your research

Export lists, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off