Audit Attribute-based Capital Financing Decision in NSE-listed Companies: Evidence from India

Juhendra Debbarma, Chinmoy Roy and Manik Chakraborty

Paradigm, 2025, vol. 29, issue 2, 142-160

Abstract: As traditional capital financing decisions are facing some new challenges, audit attribute-based capital financing decisions, with their task structure and decision aids, have been widely deployed in recent years. However, how audit attributes impact capital financing decisions is not yet established and still presents a number of intervention issues, particularly in the Indian context. This study encompassed an analysis of 113 firms listed on the National Stock Exchange (NSE) over a period of 9 years, ranging between 2016 and 2024. Panel data estimation techniques were applied, aligning with established theories concerning audit attributes and capital structure. In this study, leverage as a proxy for capital structure is taken as a criterion measure, while the audit committee size, audit committee independence, audit meetings and audit quality are taken as independent measures. Additionally, control variables, namely firm size, return on assets, firm growth, liquidity, profitability, tangibility and firm risk, were treated for the study. The empirical findings revealed that audit quality (AQ) has a positive significant relationship with leverage in the fixed effects model, demonstrating that firms with high-quality audits send a strong signal to creditors and investors that the company’s financial statements are accurate and reliable. This, in turn, builds trust and confidence in the firm’s financial health, making it easier for the firm to raise debt capital. However, the generalized method of moments model showed that AQ has a negative significant relationship with leverage, indicating that firms with higher debt levels may engage in lower-quality audits due to cost constraints, higher risk profiles or the desire to avoid scrutiny. The present study concludes that an enhancement of audit attributes can support a firm by making its decisions explicit towards external debt in providing optimal capital structure.

Keywords: Agency theory; capital structure; leverage; pecking order theory; trade-off theory (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:padigm:v:29:y:2025:i:2:p:142-160

DOI: 10.1177/09718907251379050

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