Accounting - Theses
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ItemDeterminants and Consequences of Assurance Services in Labor Unions( 2023-09)In this thesis, I examine labor unions’ demand for external auditors and the consequences of auditors’ engagements. My study begins with analyzing unions’ incentives to engage auditors voluntarily. Using a large sample of US unions between 2001 and 2016, I find that unions tend to hire auditors when the parent organization has more affiliates to monitor and when major leaders are newly appointed. This indicates that the parent organization and union leaders can significantly drive unions’ demand for auditors. I also find that unions engaging auditors are larger, represent less financially sophisticated members, and file more detailed financial statements. Conversely, I find a lower likelihood of engaging auditors if union leaders have more substantial control power. Next, I explore the impacts of assurance services on union misconduct - a severe issue of the labor movement for decades. Using unique data on union misconduct, I find that unions have reduced incidence of misconduct after engaging auditors, indicating a deterrence effect of auditors on union misconduct. Cross-sectional tests reveal that the deterrence effect is weaker when union leaders are more powerful. Nevertheless, the effect is more pronounced on financial fraud, including embezzlement and misreporting, than non-financial misconduct. Further analyses suggest that assurance services improve financial reporting quality, as evidenced by fewer bookkeeping violations and reporting violations. Finally, I investigate other consequences of engaging auditors. My results suggest that assurance services have positive implications for union memberships and resource allocation. Specifically, unions with auditors have more memberships and spend more funds on representational activities that advance members’ benefits. In contrast, they spend less on administration activities that may reflect union leaders’ bureaucracy. My research sheds new light on the determinants of voluntary assurance and the value of external auditors in the context of labor organizations. Importantly, it provides evidence that assurance services can reduce misconduct, enhance the financial reporting quality of unions, and have positive implications for union memberships and resource allocation. Overall, this dissertation contributes to prior literature by demonstrating that external auditors can mitigate agency problems in unions, a matter of great interest to regulators, union stakeholders, and scholars.