Auditor Changes and the Cost of Bank Debt

• 成果类型: Article
• 署名作者: Francis, Bill B.; Hunter, Delroy M.; Robinson, Dahlia M.; Robinson, Michael N.; Yuan, Xiaojing
• 署名单位: Rensselaer Polytechnic Institute; State University System of Florida; University of South Florida; University of Tampa; University of Massachusetts System; University of Massachusetts Lowell
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-51553
• 发表日期: 2017
• 关键词: firm tenure; LITIGATION RISK; partner tenure; AGENCY COSTS; earnings; QUALITY; MARKET; INDEPENDENCE; INFORMATION; term

摘要

We examine the response of informed market participants to the informational signal of auditor changes. Using propensity score matching and difference-in-differences research designs, we document that loan spreads increase by 22 percent on bank loans initiated within a year after auditor changes, increasing direct loan costs by approximately $ 6.6 million. We also find a significant increase in upfront and annual fees and the probability of pledging collateral, consistent with an increase in screening and monitoring by banks. The increase in spreads is significant for client-initiated auditor changes, with or without disagreements with the auditor, as well as for auditor resignations. Further, the significant increase in loan spreads is documented for upward, lateral, and downward auditor changes. Our results are robust to other proxies for financial reporting quality. Finally, we find no effect resulting from the forced auditor changes due to Arthur Andersen. Collectively, these results suggest that voluntary auditor changes increase information risk, which is priced in private credit markets.