Does auditor industry expertise affect bank loan costs?

Yinghong Zhang, Fang Sun and Chunwei Xian

Managerial Auditing Journal, 2017, vol. 32, issue 3, 295-324

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.

Keywords: Auditor industry expertise; Auditor industry specialization; Bank loan contracting; Loan spreads; Collateral; Covenant (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-07-2015-1230

DOI: 10.1108/MAJ-07-2015-1230

Access Statistics for this article

Managerial Auditing Journal is currently edited by Professor Jie Zhou

More articles in Managerial Auditing Journal from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().