Cost Of Debt And Auditor Choice
Sherry Fang Li
What the paper says
This paper examines whether auditor choice affects a firm’s cost of debt and whether debt sources matter. We find that the choice of a brand name or industry specialist auditor decreases a firm’s cost of debt. The additional impact of industry specialization, however, is not significant for the sub-sample of Big N audited firm-years. For the sub-sample of non-Big N audited firm-years, engaging an industry specialist auditor appears to increase cost of debt. A further breakdown of the full sample into a sample with only private debt and a sample with both public and private debt provides more insight. For the sample with both public and private debt, engaging a brand name and specialist auditor decreases cost of debt. But for the sample with only private debt, engaging a specialist auditor increases cost of debt. Our findings provide additional evidence for the role of external auditing in reducing cost of debt and show differences between the two dimensions of auditor differentiation: brand name reputation and industry specialization. Furthermore, our findings suggest that the choice of an industry specialist auditor has different impact on cost of debt for firms that have only private debt and firms that also have public debt.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.00 × 0.4 = 0.00 |
| M · momentum | 0.20 × 0.15 = 0.03 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.