Sourcing of Internal Auditing: An Empirical Study
Posted: 11 Oct 2006 Last revised: 25 Jan 2012
Date Written: January 25, 2012
This paper studies the factors associated with organizations' internal audit sourcing decisions, building from a previous study by Widener & Selto (1999; henceforth W&S). In their study, W&S used Transaction Cost Economics (TCE) to explain the governance of internal auditing. Our study seeks to replicate their results, using newly collected data from 66 companies headquartered in the Netherlands. Our findings are supportive of W&S. Like W&S, we find asset specificity and frequency (both individually and in interaction) to be significantly associated with sourcing decisions. These findings are robust against different model specifications, and they hold across variously defined samples. We conclude that the W&S results are reproducible in different conditions, enhancing the credibility of the TCE-based explanation of organizations' internal audit sourcing practices.
Keywords: Internal auditing, Sourcing, Make-or-buy decisions, Transaction Cost Economics
JEL Classification: M40, M46, G34
Suggested Citation: Suggested Citation