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Do audited firms have a lower cost of debt?
Högskolan Dalarna.ORCID iD: 0000-0003-2952-7327
University of Gävle, Faculty of Education and Business Studies, Department of Business and Economic Studies, Business administration.ORCID iD: 0000-0002-5043-6289
Institute of Retail Economics, Stockholm.
2022 (English)In: International Journal of Disclosure & Governance, ISSN 1741-3591, E-ISSN 1746-6539, Vol. 19, no 2, p. 153-175Article in journal (Refereed) Published
Abstract [en]

The purpose of this study is to investigate if audited financial statements add value for firms in the private debt market. Using an instrumental variable method, we find that firms with audited financial statements, on average, save 0.47 percentage points on the cost of debt compared to firms with unaudited financial statements. We also find that using the big, well-known auditing firms does not yield any additional cost of debt benefits. Lastly, we investigate if there are industries where alternative sources of information make auditing less valuable in reducing the cost of debt. Here, we find that auditing is less important in lowering cost in one industry, agriculture, where one lender has a 74% market share and a 100-year history of lending to firms within that industry. As such, it seems that lenders having high exposure to a certain industry might act as an alternative to auditing in reducing the information asymmetry between the firm and the lender.

Place, publisher, year, edition, pages
Springer , 2022. Vol. 19, no 2, p. 153-175
Keywords [en]
Agency theory; Audit complexity; Audit reform; Cost of capital; Endogenous switching model; External audit; Private limited firms; Regulation
National Category
Business Administration
Research subject
Intelligent Industry
Identifiers
URN: urn:nbn:se:hig:diva-37587DOI: 10.1057/s41310-021-00133-1ISI: 000736932300001Scopus ID: 2-s2.0-85122062262OAI: oai:DiVA.org:hig-37587DiVA, id: diva2:1625774
Available from: 2022-01-10 Created: 2022-01-10 Last updated: 2022-05-15Bibliographically approved

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Hartwig, Fredrik

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CiteExportLink to record
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Citation style
  • apa
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Language
  • sv-SE
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  • Other locale
More languages
Output format
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