Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 131: Free to choose: Do voluntary audit reforms increase employment growth?

Asif M Huq , Sven-Olov Daunfeldt (), Fredrik Hartwig and Niklas Rudholm
Additional contact information
Asif M Huq: Dalarna University, Postal: 791 88 Falun, Sweden
Sven-Olov Daunfeldt: HUI Research, Postal: 103 29 Stockholm and Dalarna University 791 88 Falun, Sweden
Fredrik Hartwig: Dalarna University, Postal: 791 88 Falun and Gävle University 80176, Gävle, Sweden
Niklas Rudholm: HUI Research, Postal: 103 29 Stockholm, Sweden

Abstract: Many European countries have abolished mandatory audits for small firms to reduce the regulatory and administrative burden for these firms. However, we still lack knowledge on whether such legislative changes affect employment growth for those firms that become free to choose to have external audits. We investigate this question using a Swedish reform that made audits voluntary for small firms fulfilling certain requirements. The reform created an almost ideal natural experiment, which we use to evaluate the effects of voluntary audits on employment growth for small firms using a difference-in-difference estimator. We find that firms which fulfilled the requirements for voluntary auditing, compared to a control group of similar firms that did not, increased their employment growth rate by 0.39%. This corresponds to 1,830 jobs being created in the year following the reform, suggesting that mandatory audits act as a growth barrier for small firms.

Keywords: Firm growth; small business economics; regulatory reform; mandatory audit

JEL-codes: D22; J23; M42; M48

21 pages, March 6, 2018

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