Inexperienced Component Auditors and the Internal Information Asymmetry of Multinational Corporations.

This article investigates how the involvement of inexperienced component auditors—defined as auditors who participate in group audits of multinational corporations (MNCs) but lack experience issuing audit opinions for U.S. publicly traded companies—affects the internal information environment and capital allocation efficiency within MNCs. Using a hand-collected sample from Public Company Accounting Oversight Board (PCAOB) Form 2 filings, the study finds that Securities and Exchange Commission (SEC) issuers with such inexperienced component auditors exhibit higher internal information asymmetry (IIA), measured by differences in trading profits between top executives and divisional managers, and lower internal capital allocation efficiency (ICAE), assessed via segment-level capital expenditure deviations. These associations are economically significant and primarily driven by inexperienced auditors performing subsidiary audits. Additional analyses reveal that firms with inexperienced component auditors also experience lower firm value and accounting performance, suggesting that audit quality at the subsidiary level influences not only external reporting but also internal managerial decision-making in geographically dispersed MNCs.