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Audit duration quality and client credit risk

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  • Pei-Gi Shu
  • Tsung-Kang Chen
  • Wen-Jye Hung

Abstract

Using Taiwanese listed firms, we examined how auditor-related idiosyncratic risk affects clients' credit risks from the perspective of audit duration quality, including the level and volatility of audit report lag (ARL). We find that both the level and the volatility of ARL are positively related to clients' credit risks when other well-known determinant variables are controlled. In addition, the level (volatility) of ARL has weaker (greater) power in predicting the financial crisis of client firms associated with the Big-4 auditing firms than the non-Big-4 ones. Moreover, the results are robust to the issue that ARL may be long, the concern of initially engaged clients, different estimation periods of ARL volatility, and another credit risk measure.

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  • Pei-Gi Shu & Tsung-Kang Chen & Wen-Jye Hung, 2015. "Audit duration quality and client credit risk," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 22(2), pages 137-162, June.
    • Handle: RePEc:taf:raaexx:v:22:y:2015:i:2:p:137-162
    DOI: 10.1080/16081625.2014.981936
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    Cited by:

    1. Chen, Tsung-Kang, 2016. "Does geography matter in a geographically small and culturally homogeneous country? Firm location and corporate credit risk," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 323-348.
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    3. Ballester, Laura & González-Urteaga, Ana & Martínez, Beatriz, 2020. "The role of internal corporate governance mechanisms on default risk: A systematic review for different institutional settings," Research in International Business and Finance, Elsevier, vol. 54(C).

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