Blockchain Adoption and Audit Quality

This study examines the impact of blockchain adoption in the corporate setting. Specifically, we provide comprehensive empirical support to recent theory (Cao, Cong, and Young, 2024) proposing that blockchain adoption positively affects endogenous audit quality and client misstatements. Exploiting the exogenous implementation of blockchain technology in bank confirmations in China, our study documents a significant reduction in regulatory penalties for financial misstatements, driven by auditors' enhanced ability to identify and correct past financial errors, especially in revenue and expense recognition. Additionally, we find that the benefits of blockchain adoption are more pronounced in non-specialist industries, state-owned enterprises, and firms with smaller audit committees or fewer independent directors and apply regardless of whether a large auditor audits the firm, suggesting that blockchain adoption also levels the plain field of audit quality across auditors with different capacities and financial resources. Moreover, blockchain adoption induces efficiency, translating to lower audit fees, higher non-audit service fees, reduced audit costs, and more timely audit reporting. Overall, this study provides a novel contribution to the literature examining the economic consequences of emerging technologies in auditing, tests several predictions of recently proposed theory, and offers insights into potential applications and future directions of blockchain in the corporate setting.