Impact of Internal Auditing on Branch Bank Performance: A Field Experiment

Abstract

We conducted an experiment to assess the contribution of internal auditing to organizational effectiveness. We randomly assigned 224 bank branches to experimental conditions (audited or not audited) and monitored their performance for a year. Performance significantly improved during the half year following the audit in the experimental branches, in contrast to a decline in the control branches due to poor general business conditions. The contribution of auditing to performance is discussed in terms of learning, motivation, deterrence, and process improvement.