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In-network auditors and subsidiaries’ investment efficiency

Year: 2026

Type: article

Abstract: This paper examines the impact of appointing in-network auditors (i.e., audit firms from the same global audit firm network) in business groups on the investment efficiency of subsidiaries. We use a sample of European business groups for which we observe the parent and both domestic and foreign subsidiaries. Our findings reveal that an audit by in-network auditors does not affect the investment efficiency of domestic subsidiaries but leads to improvements in the investment efficiency of foreign subsidiaries. Specifically, external audits by in-network auditors are associated with a reduced likelihood and reduced extent of over-investments by foreign subsidiaries. While prior research mostly focuses on the role of auditors in providing financial reporting assurance within business groups, our study shows that in-network auditors provide audits with more added value by enhancing subsidiary investment efficiency.

Source: European Accounting Review

DOI: 10.1080/09638180.2026.2624458

Authors: Eva Labro, Jochen Pierk, Christophe Van Linden

Institutions: University of North Carolina at Chapel Hill, Erasmus University Rotterdam, Audencia Business School

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Funders: Northern Illinois University, Tulane University, DePaul University, Texas Christian University, Universität St. Gallen, Illinois State University, University of Bristol, University of Tasmania, Erasmus Universiteit Rotterdam, University of Illinois at Urbana-Champaign

OpenAlex ID: W7133540326

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