Title

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

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