Interrelations of capital markets in the context of increased audit oversight in the European Union - Evidence on third-country auditors

Mihaela Mocanu, Octavian Ionescu

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Third-country auditors are auditors of non-EU incorporated companies that have issued securities on EU regulated markets. We identified a notable lack of academic literature on the issue of third-country auditors and this is surprising given the importance of quality audits and a level playing field across the EU. The main contribution of our article is to address this literature gap on third country auditors and the related findings of this article can be used to raise awareness of the potential impact of third country auditors for EU and national regulators, existing and potential investors and other business stakeholders. This research builds on adjacent audit oversight and capital markets literature and we extend this literature by providing evidence on third-country auditors. Specifically, we test the relationship between market capitalization and number of foreign IPOs of listed companies in representative EU countries (on one hand) and the existence of third-country auditors in those respective countries (on the other hand). Our research was performed in the second half of 2018 and is based on the latest data available. We have found that there are about 200 third-country auditors present in the public registers of audit oversight bodies in 11 EU countries. According to our network analysis, only European countries with a developed capital market have attracted third-country auditors. Most of the relationships of these developed EU capital markets are nurtured with non-EU capital markets that are at the same level of development (e.g. USA, Switzerland, Canada, Israel, and Australia). Our research hypotheses were validated: (1) the higher the market capitalization of an EU country, the lower the likelihood for the registration of third-country auditors; (2) the higher the number of foreign IPOs relative to the total IPOs on the stock exchange market, the higher the likelihood for the registration of third-country auditors.
Original languageEnglish
Pages (from-to)70-80
Number of pages10
JournalZagreb International Review of Economics and Business
Issue number1
Publication statusPublished - May 2020


  • capital markets
  • audit oversight
  • third-country auditors
  • European Union

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