Government Procurement and Financial Statements Verification—Evidence from Private Firms in Emerging Economies

• In Event: Government and Law

Abstract

Employing a unique World Bank dataset that covers more than 80,000 private firms across 139 countries, I examine the demand for suppliers’ financial statements verification by governments in emerging markets, a setting where government procurement is significant and small private firms’ participation is prevalent. I find evidence consistent with governments demanding external financial audits to select and monitor suppliers. In further analysis, I find governments’ demand is lower when governments can benefit from alternative monitoring from tax authorities or creditors, when government officials receive bribery from suppliers, and when government spending is less transparent. Using a propensity-score matched sample and a panel sample with firm fixed effects and a changes specification, I corroborate my main findings.

Author

• Shushu Jiang, University of Toronto