What Does Reputation Buy? Differentiation in a Market for Third-Party Auditors
American Economic Review
vol. 103,
no. 3, May 2013
(pp. 314-19)
Abstract
We study differences in quality in the market for third-party environmental auditors in Gujarat, India. We find that, despite the low overall quality, auditors are heterogeneous and some perform well. We posit that these high-quality auditors survive by using their good name to insulate select client plants from regulatory scrutiny. We find two pieces of evidence broadly consistent with this hypothesis: (i) though estimates are not precise, higher-quality auditors appear to be paid more both in their work as third-party auditors and in their complementary work as consultants; and (ii) plants with high-quality auditors incur fewer costly penalties from the regulator.Citation
Duflo, Esther, Michael Greenstone, Rohini Pande, and Nicholas Ryan. 2013. "What Does Reputation Buy? Differentiation in a Market for Third-Party Auditors." American Economic Review, 103 (3): 314-19. DOI: 10.1257/aer.103.3.314Additional Materials
JEL Classification
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- M42 Auditing
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- Q52 Pollution Control Adoption Costs; Distributional Effects; Employment Effects
- Q56 Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth