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Does auditor industry expertise affect bank loan costs?

Author

Listed:
  • Yinghong Zhang
  • Fang Sun
  • Chunwei Xian

Abstract

Purpose - This paper aims to examine whether firms retaining industry-specialist auditors receive better price and non-price terms for bank loans. Design/methodology/approach - Based on a sample of companies retaining big N auditors during the 2000-2010 period, this paper constructed six proxies for auditor industry expertise and tested three major loan terms: loan spreads, number of general and financial covenants and requirements for collateral. Findings - It was found that companies retaining industry-specialist auditors receive lower interest rates and fewer covenants. Banks are also less likely to demand secured collateral. These findings are supported by several sensitivity tests. Research limitations/implications - The findings suggest that auditor industry expertise provides incremental value to creditors and that bank loan cost is one economic benefit for companies hiring specialist auditors. Originality/value - To the best of the authors’ knowledge, this study is the first to investigate the impact of auditor industry expertise on the cost of private debts.

Suggested Citation

  • Yinghong Zhang & Fang Sun & Chunwei Xian, 2017. "Does auditor industry expertise affect bank loan costs?," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 32(3), pages 295-324, March.
    • Handle: RePEc:eme:majpps:maj-07-2015-1230
    DOI: 10.1108/MAJ-07-2015-1230
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    Citations

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    Cited by:

    1. Schneider, Arnold, 2018. "Studies on the impact of accounting information and assurance on commercial lending judgments," Journal of Accounting Literature, Elsevier, vol. 41(C), pages 63-74.
    2. Arnold Schneider, 2021. "Does knowledge about a borrowing firm’s internal audit influence bank lending decisions?," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(3), pages 304-314, September.

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