%0 Journal Article
%T Does board independence substitute for external audit quality? Evidence from an exogenous regulatory shock
%A Pandej Chintrakarn
%A Pornsit Jiraporn
%A Shenghui Tong
%A Sirimon Treepongkaruna
%J Australian Journal of Management
%@ 1327-2020
%D 2018
%R 10.1177/0312896217712334
%X Exploiting the passage of the Sarbanes¨COxley Act (SOX) as an exogenous regulatory shock, we investigate whether board independence substitutes for external audit quality. Based on over 14,000 observations across 18£¿years, our difference-in-difference estimates show that firms forced to raise board independence are far less likely to employ a Big 4 auditor. In particular, board independence lowers the propensity to use a Big 4 auditor by approximately 38%. Firms with stronger board independence enjoy more effective governance and therefore do not need as much external audit quality as those with less effective governance do. Based on a natural experiment, our empirical strategy is far less vulnerable to endogeneity and is thus considerably more likely to show a causal effect, rather than merely an association
%K Auditor
%K board independence
%K corporate governance
%K exogenous shock
%K independent directors
%K natural experiment
%K Sarbanes¨COxley
%K M41
%K M42
%K G34
%U https://journals.sagepub.com/doi/full/10.1177/0312896217712334