FinTech Finance and External Audit

Synopsis The research problem This study investigated how national financial technology (FinTech) finance influences the external audit decisions of private, nonfinancial firms in developing economies. While FinTech is transforming financial systems and audit practices globally, its impact on audit demand in low- and middle-income countries remains underexplored. The test hypotheses The study tested two main hypotheses: first, that higher levels of FinTech finance are associated with increased firm-level demand for external audits; and second, that this relationship is mediated by institutional audit conditions and firm characteristics such as size, industry, and international orientation. Target population The analysis focused on private audited and unaudited firms operating across a range of low- and middle-income countries worldwide, drawing data from 2013 to 2020. Adopted methodology The study employed cross-country panel data econometric techniques, using probit models with country and year fixed effects. To strengthen causal inferences, the analysis incorporated instrumental variable regressions, Oster’s coefficient stability tests, and dominance analysis. Analysis The binary outcome variable, whether a firm’s accounts are externally audited, was regressed on national FinTech finance expenditure and a wide set of firm- and country-level controls. Robustness checks included sensitivity tests for sample restrictions, nonlinearities, and lag effects. Mediation was assessed via interaction terms with auditing standards, registration status, and employee training. Findings Results revealed that FinTech finance significantly increases the likelihood of firms undertaking external audits, especially in countries with strong regulatory environments. The effect is stronger for larger, digitally engaged, and export-oriented firms. Mediating factors, such as audit regulations, formalization, and workforce training, amplify this relationship. These findings underscore the growing role of FinTech in shaping audit behavior and highlight the importance of institutional support to maximize its transparency-enhancing effects.