Does Auditor Quality and Tenure Matter to Investors? Evidence from the Bond Market

Does Auditor Quality and Tenure Matter to Investors? Evidence from the Bond Market 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 (1) auditor quality and tenure are negatively and significantly related to the cost of debt financing, (2) the relation between auditor characteristics and the cost of debt is most pronounced in firms with debt that is noninvestment grade, and (3) 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting Research Wiley

Does Auditor Quality and Tenure Matter to Investors? Evidence from the Bond Market

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
Copyright © 2004 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0021-8456
eISSN
1475-679X
D.O.I.
10.1111/j.1475-679X.2004.00156.x
Publisher site
See Article on Publisher Site

Abstract

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 (1) auditor quality and tenure are negatively and significantly related to the cost of debt financing, (2) the relation between auditor characteristics and the cost of debt is most pronounced in firms with debt that is noninvestment grade, and (3) 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.

Journal

Journal of Accounting ResearchWiley

Published: Sep 1, 2004

References

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