The moderating effect of audit quality on the relationship between financial inclusion and corporate investment: new evidence from the Middle East and North Africa region.

The purpose of this paper is to examine the impact of financial inclusion on corporate investment. More specifically, this paper investigates the possibility of a nonlinear relationship between financial inclusion and corporate investment, as well as the moderating effect of audit quality in this this relationship. To do so, we selected a group of 400 listed non-financial firms in the Middle East and North Africa (MENA) region (Egypt, Jordan, Kuwait, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, and the United Arab Emirates) over a period from 2007 to 2020. The results show an inverted U-shaped link between financial inclusion and corporate investment, applying the system generalized method of moments (SGMM) method. They also found that audit quality is identified as a moderating factor in the relationship between financial inclusion and corporate investment. Our results show that the interaction of financial inclusion and audit quality improves investment efficiency, but that underinvestment scenario could result from spending free cash-flows on risky projects. The findings of this study could be a valuable contribution to the development of financial inclusion policies and to improving access to credit for policymakers and managers in the MENA region. The combination of financial inclusion and audit quality (internal and external) is indispensable for reducing agency costs and optimizing financial inclusion levels. Impact statement: This paper analyzes the impact of financial inclusion on corporate investment, emphasizing the importance of audit quality. The result reveals an inverted U-shaped relationship between financial inclusion and corporate investment and highlight that audit quality significantly moderates this relationship. The findings have implications for policymakers and managers in the MENA region, emphasizing the need for effective audit practices to reduce costs and improve credit access. [ABSTRACT FROM AUTHOR]