Joint audit, political connections and cost of debt capital

Abstract

We investigate the association between joint audit and cost of debt for a sample of non-financial, publicly listed firms from the Gulf Cooperation Council (GCC) countries. Although the conventional wisdom suggests that "two heads are better than one", empirical evidence on the beneficial impact of joint audit has not been convincingly documented. We attempt to shed further insights into this debate, using data from the GCC countries. We document a significantly negative effect of joint audit on cost of debt in the GCC countries. This effect is more pronounced in cases where at least one of the joint audit firms is a Big 4 auditor. We then investigate whether political connections with royal families moderate the association between joint audit and cost of debt. Our results suggest that the beneficial effects of joint audits, in terms of a lower cost of debt, are greater in firms with such political connections.

Political connections, joint audit and tax avoidance: evidence from Islamic banking industry

“…The choice of Islamic banking industry is mainly justified by the fact that main Islamic banks have been established in a country characterised by high levels of political involvement in business world and a relationship-based economy (e.g. Malaysia, Indonesia and Gulf Cooperation Council (GCC) countries) (Abdul Wahab et al , 2017; Al-Hadi et al , 2017; Adhikari et al , 2006).…”

Using Joint Audits to Support the Auditor's Independence "A Field Study"

“…The process of joint audit can be performed also through one audit firm from (Big-4) and another one of (Non big-4). It can be performed additionally through (Non big-4) audit firms (Ibrahim, 2018;Sakel et al, 2012& Al Hadi, 2017.…”

Political Connection Types and Investors’ Perceived Risk: Evidence from Malaysia

“…Asian Journal of Accounting and Governance 12: 65-76 (2019) ISSN 2180-3838 (http://dx.doi.org/10.17576/ AJAG-2019-12-06) In this study, we focus on the investors' perceived risk measured by COE, which is directly related to the perception of capital market players and is sensitive to changes in the firm's riskiness. While most previous literature focus on impact on firm's valuation (e.g., Faccio 2006;Faccio & Mura 2016;Fisman 2001;Goldman et al 2009;Guerra et al 2015;Hillier & Loncan 2019) and cost of capital (e.g., Al-Hadi et al 2017;Bliss & Gul 2012a;Jaffar et al 2012;Houston et al 2014;Tee 2018), fewer studies examine the impact of political connection on investors' perceived risk Pham 2019). The present study seeks to answer the following questions: (1) Is there a relationship between political connection and investors' perceived risk?…”

“…However, due to the effects of systematic exchange of favours between firms and political directors, political influence may encourage rent-seeking activities that divert firm's resources and enable politicians to achieve political and social objectives (grabbing-hand effect) (Boateng et al 2019). As such, investors could also perceive investments in PCON firms as risky, and thus increases the systematic risk of financing costs (e.g., Al-Hadi et al 2017;Bliss & Gul 2012b;Houston et al 2014;Pham 2019;Tee 2018). This paradoxical nature of the impact of political influence in business decisions is worth reconsidering by looking at the types of political connections (directorship or ownership), which may have different impacts on the benefits obtained by PCON firms.…”