The Impact of Corporate Governance and Audit Quality on the Cost of Private Loans

Ling Chu, Robert Mathieu and Chima Mbagwu

Accounting Perspectives, 2009, vol. 8, issue 4, 277-304

Abstract: The objective of this paper is to examine whether banks discriminate between firms on the basis of their financial condition when assessing the credit default risk, and to what extent corporate governance and auditor quality mitigate such risks in the pricing of new bank loans. The results indicate that, depending on the probability of bankruptcy, banks rely on different monitoring devices. For firms with a low probability of bankruptcy, banks do not rely on the quality of corporate governance or the auditor's industry specialization. However, auditor tenure and a change in auditor affect the spread. For firms with a high probability of bankruptcy, the spread is adjusted for the quality of corporate governance and the auditor's specialization. These results are robust to alternative specifications and measures.

Date: 2009
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https://doi.org/10.1506/ap.8.4.2

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Persistent link: https://EconPapers.repec.org/RePEc:wly:accper:v:8:y:2009:i:4:p:277-304

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