 The cost of debt when all-equity firms raise sfinance: The role of investment opportunities, audit quality and debt maturityKam-Wah Lai Journal of Banking & Finance, 2011, vol. 35, issue 8, 1931-1940 Abstract: This paper investigates the effect of investment opportunities, audit quality and debt maturity on the interest paid by all-equity firms. Debt holders are likely to charge higher interest to price-protect themselves because of the under-investment and asset substitution problems. All-equity firms, however, could reduce interest charge by employing Big 4 auditors to increase the reliability of audited financial statements or using short-term debt to allow more frequent monitoring of their financial condition by lenders and re-pricing of debt. The results show that interest charge is positively related to investment opportunities of all-equity firms. This relationship is weaker when the firms have Big 4 auditors or a higher proportion of debt due in the next year over total debt. In addition, the above results do not hold for highly levered firms since the lenders are constantly monitoring the financial condition of their borrowers. Keywords: Interest; expense; Investment; opportunities; Big; 4; auditors; Short-term; debt (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:8:p:1931-1940 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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