The value of a voluntary audit in debt financing: evidence from small privately held companies

Sanna Tervo and Annukka Jokipii

International Journal of Accounting, Auditing and Performance Evaluation, 2018, vol. 14, issue 4, 291-314

Abstract: This study examines the effects of voluntary audits on the quality of financial information and the cost of debt in small privately held companies using a sample of 5,254 observations spanning 2007-2012. Prior studies [see Blackwell et al. (1998), Minnis (2011) and Kim et al. (2011)] suggest that audited firms have a significantly lower cost of debt. In contrast to prior studies, our archival evidence shows that firms opting for a voluntary audit pay a slightly higher interest rate on their debt than do the unaudited firms among the set examined. This result is however supported by Niemi et al. (2012) who found that having a voluntary audit is positively associated with financial distress and by Dedman et al. (2014) who found that riskier companies are more likely to purchase voluntary audits.

Keywords: voluntary audit; financial distress; financial statement; discretionary accruals; financial information; reliability; privately held companies; debt financing; financial information quality; interest rate; accounting; performance evaluation; Finland. (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijaape:v:14:y:2018:i:4:p:291-314

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