The Challenge of “Doing Business with Strangers”: Audit Reports as a “Signaling Instrument

Authors : Pınar DALOĞLU, Emre BALIKCI

Pages : 1239-1258

Doi:10.25295/fsecon.1197653

View : 50 | Download : 47

Publication Date : 2023-05-25

Article Type : Other Papers

Abstract :This paper discusses how firms in Turkey have used audit reports of companies like Deloitte as a \`costly signaling\` instrument. The paper shows that the firms integrating into the global economy during 1990s were in intense competition to find global business partners. The need to do \`business with strangers\` created a new challenge for this firms: Broadcasting strong signals proving the capacity of being a reliable, long-standing business partner. When the partnerships were formed in smaller business circles, these signals were produced by face-to-face social interactions. But when the entrepreneurs cooperate/negotiate with firms from different national and cultural backgrounds, audit reports from prestigious companies became a universal signal about the firms\` reliability. To illustrate the transformation in this \`signaling\` process, we conduct in-depth interviews with the managers of auditing firms, entrepreneurs and did an archival study on many resources of the period.
Keywords : Accounting history, costly signaling, evolutionary economics, auditing