The role of auditor choice in debt pricing in private firms

• 成果类型: Article
• 署名作者: Fortin, Steve; Pittman, Jeffrey A.
• 署名单位: McGill University; Hong Kong University of Science & Technology; Memorial University Newfoundland
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1506/car.24.3.8
• 发表日期: 2007
• 页码: 859-+
• 关键词: earnings management; AGENCY COSTS; CORPORATE DISCLOSURE; sample selection; rule 144A; QUALITY; MARKET; TENURE; RISK; INFORMATION

摘要

We examine the role of auditor choice in debt pricing in private firms. Because both Moody's and Standard & Poor's comprehensively rate 144A bond issues made by private firms, we can isolate the importance of the information and insurance motives for hiring a Big 4 auditor. After controlling for other determinants and nonrandom selection of external auditors, we fail to find that the presence of a Big 4 auditor affects the yield spreads or credit ratings on these securities. This implies that auditor choice does not influence either the perceptions of credit-rating agencies about the credibility of issuers' financial statements or the perceptions of bondholders about implicit insurance coverage against future losses stemming from audit failure. Consistent with Chaney, Jeter, and Shivakumar's 2004 finding that private firms do not pay more for Big 4 audits, our evidence suggests that private firms with Big 4 auditors do not benefit from lower borrowing costs. Similarly, additional tests reveal that auditor tenure does not explain debt pricing in private firms.