Does auditor industry expertise affect bank loan costs?
Document Type
Article
Publication Date
1-1-2017
Abstract
Purpose – This paper aims to examine whether firms retaining industry-specialist auditors receive better price and non-price terms for bank loans. Design/methodology/approach – Based on a sample of companies retaining big N auditors during the 2000-2010 period, this paper constructed six proxies for auditor industry expertise and tested three major loan terms: loan spreads, number of general and financial covenants and requirements for collateral. Findings – It was found that companies retaining industry-specialist auditors receive lower interest rates and fewer covenants. Banks are also less likely to demand secured collateral. These findings are supported by several sensitivity tests. Research limitations/implications – The findings suggest that auditor industry expertise provides incremental value to creditors and that bank loan cost is one economic benefit for companies hiring specialist auditors. Originality/value – To the best of the authors’ knowledge, this study is the first to investigate the impact of auditor industry expertise on the cost of private debts.
DOI
10.1108/MAJ-07-2015-1230
Publication Title
Managerial Auditing Journal
Volume Number
32
Issue Number
3
First Page
295
Last Page
324
ISSN
02686902
Recommended Citation
Zhang, Yinghong; Sun, Fang; and Xian, Chunwei, "Does auditor industry expertise affect bank loan costs?" (2017). Accounting, Business Law, and Finance Faculty Publications. 18.
https://neiudc.neiu.edu/abf-pub/18
