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Audit Quality and Cost of Debt Capital for Private Firms: Evidence from Finland
Author(s) -
Karjalainen Jukka
Publication year - 2011
Publication title -
international journal of auditing
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.583
H-Index - 21
eISSN - 1099-1123
pISSN - 1090-6738
DOI - 10.1111/j.1099-1123.2010.00424.x
Subject(s) - business , cost of capital , audit , accounting , quality audit , accrual , audit evidence , debt ratio , joint audit , auditor's report , weighted average cost of capital , external auditor , debt , finance , economics , internal audit , financial capital , human capital , earnings , capital formation , profit (economics) , microeconomics , economic growth
The purpose of this paper is to examine the value relevance of the perceived audit quality in terms of who audits, as well as the audit outcomes in terms of the auditor's opinion and accruals quality, in the pricing of debt capital for privately held firms, by examining a large sample of privately held Finnish firms. The findings indicate that Big 4 audits and audits with more than one responsible auditor are associated with a decreased cost of debt capital. Also, firms with modified audit reports and those with lower quality accruals have a higher cost of debt capital. The findings suggest that both the perceived audit quality and audit outcomes are relevant in the pricing of debt capital for privately held firms. Additional analysis suggests that, while the outcomes of an audit are important in the pricing of debt regardless of a firm's size, the perceived audit quality is more important for larger privately held firms.