Does Auditor Quality and Tenure Matter to Investors? Evidence from the Bond Market
Publication Date
3-31-2003
Abstract
We examine the relation between auditor characteristics (quality and tenure) and the cost of debt financing. Consistent with the hypothesis that audit characteristics are important to the capital markets, we find that (i) auditor quality and tenure are negatively and significantly related to the cost of debt financing, (ii) the relation between auditor characteristics and the cost of debt is most pronounced in firms with non-investment grade debt, and (iii) both the insurance and information role of audits are economically significant to the cost of debt. Overall, our results suggest that, through their dual roles of providing information and insurance, auditor quality and tenure matter to capital market participants.
Document Type
Article
Keywords
information asymmetry, bond market, audit quality, auditor tenure, mandatory rotation, insurance
Disciplines
Finance
DOI
10.2139/ssrn.384594
Source
SMU Cox: Finance (Topic)
Language
English
