The Value of Auditor Assurance: Evidence from Loan Pricing

Blackwell, David W.; Noland, Thomas R.; Wintersj, Drew B.

doi:10.2307/2491320

Cited by 371 publications

(238 citation statements)

References 16 publications

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“…We also include return on assets (ROA) and the ratio of total debts to total assets (LEV) as control variables because previous research suggests they may affect discretionary accrual choices in the current period. Finally, given that increased credibility of audited information has been shown to result in the lower cost of capital (Yu, 2005, refers to a transparency spread in bond markets) for firms that receive clean opinions (Bamber and Stratton, 1997;Blackwell et al, 1998), we use the ratio of total bank debts to interest expenses. We expect that bankers, as senior debt claimants, can serve as a third party certification of the firm and provide a monitoring function as senior debt holders.…”

Section: Methodology and Resultsmentioning

confidence: 99%

Auditor awareness of earnings management

Koumanakos

Γεωργόπουλος

Siriopoulos

2008

IJAAPE

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This study examines whether auditor reporting in Greece is associated with different levels of discretionary accruals -a common proxy for earnings management. We focus our research on 91 cases of quoted companies on the Athens Stock Exchange (ASE). These are listed companies that were asked in year 2003 by the Athens Stock Exchange Board to quantify the effects of the qualifications made by their external auditors and post them in the ASE website. Those auditors' reports were referred to published financial statements of the year 2002. By employing some variations of the traditional Jones-discretionary accrual model, we document that several major Greek companies in financial distress with qualified audit opinions do appear to manipulate their reported earnings by exploiting the weaknesses of the Greek GAAP.

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Section: Methodology and Resultsmentioning

confidence: 99%

Auditor awareness of earnings management

Koumanakos

Γεωργόπουλος

Siriopoulos

2008

IJAAPE

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“…Blackwell, Noland, and Winters [1998] find auditor use associated with lower interest rates in 212 revolving credit agreements from six US banks. Allee and Yohn [2010], using a representative sample of 1,481 US private firms, finds no association between audit association and cost of debt.…”

Section: Introductionmentioning

confidence: 88%

Discussion of The Value of Financial Statement Verification in Debt Financing: Evidence from Private U.S. Firms

Cassar

2011

J of Accounting Research

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I discuss Minnis [2010] in the context of the broader literature on private firm financing. In particular, I focus on the unique features of the private firm setting and how it affects research design and inference. I detail the alternative information sources available to debt financiers of private firms that may limit the role of auditors and firm financial statements. I review research in the private firm setting that documents the heightened importance of many omitted correlated variables such as the loan characteristics, contractual terms, and the characteristics of the entrepreneur that affect cost of debt. In evaluating the validity of Minnis's [2010] hypotheses and econometric methods, I report findings from a representative sample of private firms provided by the Federal Reserve Board's Survey of Small Business Finances. ABSTRACT:I discuss Minnis [2010] in the context of the broader literature on private firm financing. In particular, I focus on the unique features of the private firm setting and how it affects research design and inference.

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“…Voluntary audits facilitate debt contracting for two reasons. First, they may alleviate information uncertainty faced by lenders; second, the assurance provided by an audit may reduce debt monitoring and negotiation costs (Blackwell, Noland, & Winters, 1998;Kim et al, 2011). Empirical research from Korea, the United Kingdom (UK) and the USA supports these arguments (Blackwell, Noland, & Winters, 1998;Minnis, 2011;Kim et al, 2011;Lennox & Pittman, 2011;Dedman & Kausar, 2012;Kausar, Shro , & White, 2016).…”

Section: The Demand Side: Do Private Smes Demand Audit?mentioning

confidence: 99%