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Does Auditor Quality and Tenure Matter to Investors? Evidence from the Bond Market
Author(s) -
MANSI SATTAR A.,
MAXWELL WILLIAM F.,
MILLER DARIUS P.
Publication year - 2004
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/j.1475-679x.2004.00156.x
Subject(s) - business , audit , debt , cost of capital , quality audit , auditor independence , bond , capital market , monetary economics , financial system , accounting , finance , economics , joint audit , internal audit , market economy , incentive
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.