Auditor size, tenure, and bank loan pricing

Kim, Jeong‐Bon; Song, Byron Y.; Tsui, Judy S. L.

doi:10.1007/s11156-011-0270-z

Cited by 61 publications

(39 citation statements)

References 48 publications

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“…Previous empirical literature examines the association between the cost of debt and auditing, and it supports the idea that better audits improve the credibility of the financial statements and help companies access better financing conditions (Chu, Mathieu, & Mbagwu, 2009;Kim, Song, & Tsui, 2013;Pittman & Fortin, 2004). However, there are Given this, we can analyse whether there is a punishment for breaching the audit requirement.…”

Section: Introductionmentioning

confidence: 72%

“…Most of the previous literature has examined the effect of specific characteristics of the audit on the cost of debt (Dhaliwal et al, 2008;Kim et al, 2013;Li et al, 2010;Pittman & Fortin, 2004). These specific characteristics are several dimensions of audit quality.…”

Section: Audit Quality and Cost Of Debtmentioning

confidence: 99%

“…The previous literature considers auditor size to be a proxy for audit quality because of a higher professional competence (Becker, DeFond, Jiambalvo, & Subramanyam, 1998;Francis, Maydew, & Sparks, 1999) and greater independence (DeAngelo, 1981). Previous research has also used other proxies for audit quality, such as auditor specialisation (Balsam, Krishnan, & Yang, 2003;Li et al, 2010), auditor fees (Brandon, Crabtree, & Maher, 2004;Dhaliwal et al, 2008) and auditor tenure (Boone, Khurana, & Raman, 2008;Kim et al, 2013;Mansi, Maxwell, & Miller, 2004). With regard to the relationship between auditor size and the cost of debt, although most papers show a negative association between them (Cano Rodríguez, Sánchez Alegría, & Arenas Torres, 2008;Karjalainen, 2011;Mansi et al, 2004;Pittman & Fortin, 2004), some studies do not find a significant association, what authors attribute to differences in the institutional setting (Piot & Missonier-Piera, 2007) or in information needs (Fortin & Pittman, 2007).…”

Section: Audit Quality and Cost Of Debtmentioning

confidence: 99%

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Cost of debt capital and audit in Spanish SMEs

Huguet

Cabedo

2014

Spanish Journal of Finance and Accounting / Revista Española de

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Evidence about the effect of voluntary audits on the cost of debt is mixed, and there is no research about the effects of mandatory audits and the non-compliance with the audit requirement. Using a sample of Spanish SMEs, where some companies are exempt from audit and some are mandatorily audited, we examine if audits, either mandatory or voluntary, help to reduce the cost of debt. We do not find a significant association between voluntary audits and cost of debt, whereas companies that breach the audit requirement have a higher cost of debt than the mandatorily audited ones. This suggests that differences in the cost of debt between audited and unaudited companies are associated with a "punishment" for companies that shun the mandatory audit rather than a "reward" for voluntarily audited companies. Moreover, within audited SMEs, we do not find that those audited by large auditors have a lower cost of debt.La evidencia sobre la relación entre el coste financiero y la auditoría voluntaria es mixta, y no existe literatura empírica sobre los efectos del no cumplimiento con la auditoría obligatoria. Con una muestra de pymes españolas, una parte de las cuales está obligada a auditarse y otra está exenta, examinamos si la auditoría, tanto obligatoria como voluntaria, ayuda a la reducción del coste financiero. No encontramos una relación significativa entre la auditoría voluntaria y el coste financiero, mientras que las pymes que incumplen con el requisito de auditarse tienen un coste financiero mayor que las auditadas obligatoriamente. Ello sugiere que las diferencias en el coste financiero entre pymes auditadas y sin auditar están asociadas a un "castigo" para aquellas que evitan la auditoría obligatoria, en lugar de a una "recompensa" para las auditadas de modo voluntario. Entre las pymes auditadas, no encontramos que las auditadas por grandes auditores tengan un menor coste financiero.

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Section: Introductionmentioning

confidence: 72%

Section: Audit Quality and Cost Of Debtmentioning

confidence: 99%

Section: Audit Quality and Cost Of Debtmentioning

confidence: 99%

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Cost of debt capital and audit in Spanish SMEs

Huguet

Cabedo

2014

Spanish Journal of Finance and Accounting / Revista Española de

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“…Collectively, these arguments suggest that local audit firms that are affiliated with a Big4 firm provide higher quality audits than other local audit firms do. Lenders typically rely on the financial statements to assess borrower quality (Kim, Song, & Tsui, ). Based on the foregoing argumentation, we argue that lenders perceive financial statements of borrowers that are audited by a local Indonesian audit firm that is affiliated with a Big4 firm as being of higher quality, hereby strengthening their beliefs regarding the accuracy of their assessment of the borrowers' credit risk and their perceived efficiency of lender monitoring (Booth, ).…”

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Affiliation of Indonesian audit firms with Big4 and second‐tier audit firms and the cost of debt

2019

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This paper documents that in Indonesia, where litigation risk is low and foreign audit firms can only enter the market through affiliation with a local audit firm, the appointment of a local audit firm affiliated either with a Big4 or a second‐tier audit firm reduces the cost of debt for listed companies significantly. This finding holds irrespective of the risk profile of the client and is independent of whether or not we control for endogenous auditor choice. There is less conclusive evidence of a difference in the magnitude of the effect of Big4 affiliation versus affiliation with a second‐tier audit firm. Our evidence is in line with the idea that Big4 and second‐tier audit firms are perceived as applying uniform quality criteria around the world, regardless of the local circumstances in which they operate.

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Are banking and accounting expertise on the audit committee related to bank loan terms?

Liu

Chin

2022

J Corp Accounting Finance

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The extant literature reveals that audit committee (AC) members with industry expertise can enhance the AC's effectiveness in monitoring the financial reporting process. In this study, we focus on AC banking and accounting expertise and examine their effects on bank loan contracting, respectively. We find that banks offer more favorable price term (i.e., interest rate) and non-price terms (i.e., lower likelihood of providing collateral, more financial covenants, and longer maturity) to borrowers whose AC members have banking or accounting expertise. Second, we find that the association between AC expertise and loan terms is driven more by banking expertise, either alone or in conjunction with accounting expertise, than by accounting expertise alone. The results are robust to a battery of robustness tests. Overall, our results suggest that banks value borrowers' AC banking experts as well as accounting expertise when designing loan terms.

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Auditor size, tenure, and bank loan pricing

Cited by 61 publications

References 48 publications

Cost of debt capital and audit in Spanish SMEs

Cost of debt capital and audit in Spanish SMEs

Affiliation of Indonesian audit firms with Big4 and second‐tier audit firms and the cost of debt

Are banking and accounting expertise on the audit committee related to bank loan terms?

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