Integrity of financial information and firms' access to energy in developing countries

Abstract

There are strong international pressures on developing countries to achieve the universal energy access 2030 goal and to establish stricter monitoring mechanisms of firms' financial information to attract energy investment. We argue that energy access is both a technical and an economic issue, and hence the integrity of firms' financial information is a key monitoring mechanism. We analyze the impact of financial information integrity on firms' access to energy in 138 developing countries. Our results show that the integrity of financial information is a robust predictor of firm's access to energy. The decision of a firm to have its financial accounts externally audited is associated with a higher probability of better access to energy. The effect depends on country size, but not country development. Other important aspects of business operation, such as financing and corruption, also affect energy access. The financial information integrity effect on energy access depends on the firm's size, industry and geographical location. Country-level macroeconomic, auditing and energy infrastructure conditions play a role too. Economic and financial development, economic openness, the accounting and auditing environment and the technical conditions of energy generation in a country are important controlling factors of the financial information integrity effect. Policy considerations in the developing world aiming at improving firms' access to energy must pay attention to the role of external monitoring mechanisms and the conditions that induce firms to embrace higher level and quality of external auditing.