Modified audit opinions and debt contracting: evidence from China

Hui Liu, Charles P. Cullinan and Junrui Zhang

Asia-Pacific Journal of Accounting & Economics, 2020, vol. 27, issue 2, 218-241

Abstract: We examine whether the type of audit opinion a company receives is associated with the debt characteristics of Chinese companies. Our analyses indicate that companies receiving modified audit opinions pay higher interest rates and have more short-term debt. When the auditor mentions going concern in the audit opinion, companies pay higher interest rates and have a lower percentage of long-term debt, but this result is weaker for state-owned enterprises. We also find that companies receiving qualified or adverse opinion pay higher interest rates and have a lower level of long-term debt as a percentage of total debt.

Date: 2020
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DOI: 10.1080/16081625.2018.1517048

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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