Signing Auditors’ Foreign Experience and Debt Financing Costs: Evidence for Sustainability of Chinese Listed Companies

Fei Hou, Fangnan Liao, Jie Liu and Hao Xiong
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Fei Hou: School of Management, Xiamen University, Xiamen 361005, China
Fangnan Liao: School of Economics and Management, Xinan University, Chongqing 400715, China
Jie Liu: School of Accounting, Guizhou University of Finance and Economics, Guiyang 550025, China
Hao Xiong: School of Accounting, Guizhou University of Finance and Economics, Guiyang 550025, China

Sustainability, 2019, vol. 11, issue 23, 1-19

Abstract: This study investigates whether signing auditors with foreign experience influence debt financing costs. Using a sample of Chinese listed firms for the period of 2001–2016, this study hand-collects the information of signing auditors’ foreign experience and empirically examines the relationship between signing auditors’ foreign experience and debt financing costs. The empirical results show that signing auditors’ foreign experience is significantly and negatively correlated with debt financing costs, suggesting that signing auditors’ foreign experience improves audit quality, reduces information risk and thereby lowers the cost of debt financing. Further analyses show that the negative effect of signing auditors’ foreign experience on the cost of debt financing is more pronounced in audit firms without industry expertise, suggesting that audit firm industry expertise mitigates the negative relationship between signing auditors’ foreign experience and debt financing costs. These results imply that signing auditors who have foreign experience could serve a significant role in debt financing, which would strengthen firms’ sustainability.

Keywords: signing auditors; foreign experience; audit quality; debt financing costs; industry expertise (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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