The role of shared auditors in loan contracts

Wael Aguir, Brandon Ater, Andrew A. Anabila and Christian Kuiate Sobngwi

The Quarterly Review of Economics and Finance, 2022, vol. 86, issue C, 87-97

Abstract: We investigate the private debt contracting implications of when the lender and borrower share the same audit firm. Specifically, we posit that when the lender and borrower share the same audit firm, this shared auditor relationship provides lenders with privileged access to a trustworthy third party that can be used to verify information about borrowers’ financial information and leads to gains in contracting efficiency to the benefit of both the lender and borrower. Our findings indicate that the shared auditor relationship is associated with a decrease in the cost of debt and the likelihood of future default. Our findings highlight the role played by external auditors in facilitating lenders’ screening and monitoring efforts in private debt contracts for public firms.

Keywords: Loan contracts; Cost of debt; Audit quality; Shared auditors (search for similar items in EconPapers)
JEL-codes: G32 M42 O16 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:86:y:2022:i:c:p:87-97

DOI: 10.1016/j.qref.2022.05.005

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