Internal auditing and voluntary cooperation in firms: A cross-cultural experiment
Abstract
Firms expend costly resources on audit-based monitoring schemes to improve interdivisional coordination. This study investigates the premise that the effectiveness of and demand for audit-based monitoring may be sensitive to societal factors. Data from a between-subjects experiment involving 60 compensated groups of four (a total of 240 subjects) indicates an interaction between the experiment's two factors: (1) country (20 groups conducted in Canada, 20 in Hong Kong and 20 in the People's Republic of China (PRC)), and (2) the degree of anonymity in internal reporting. Specifically, we find that audit-based monitoring is less effective and less demanded in Hong Kong and the PRC than in Canada, but this difference arises only in a setting with a low degree of anonymity. The interaction with anonymity supports the attribution of results to differing cultural values.