The Unintended Effects of US Regulations on the Value of Cash Holdings of Non‐US Companies: Evidence from the Public Company Accounting Oversight Board's International Inspection Access

We investigate the effects of the Public Company Accounting Oversight Board's (PCAOB) international inspection access on the value of cash holdings for non‐US companies. Utilizing a difference‐in‐differences (DiD) research design, we find that investors assign significantly higher value to a non‐US company's cash holdings when the company's non‐US auditor becomes subject to PCAOB inspections. We employ several tests to strengthen our causal inferences. First, parallel trend analyses reveal no differential pre‐treatment trends prior to the granting of PCAOB inspection access. Second, placebo tests using clients of non‐US auditors not registered with the PCAOB show no significant changes in the value of cash holdings. Third, the value of cash holdings does not change around hypothetical years of inspection access. Cross‐sectional analyses reveal that the positive effects of PCAOB inspection access are more pronounced in countries with (i) strong shareholder protection laws, (ii) stringent auditor regulations, and (iii) greater convergence between local generally accepted accounting principles (GAAP) and US GAAP. Lastly, we show that PCAOB inspection access strengthens the positive relationship between excess cash and future operating performance and reduces cash flow‐investment sensitivity, supporting the interpretation that the positive valuation effects are driven by increased monitoring of corporate cash usage. Our findings remain robust using an alternative cash valuation model.