The effect of auditor quality on financing decisions

Chang, Xin, Dasgupta, Sudipto and Hilary, Gilles 2009, The effect of auditor quality on financing decisions, Accounting review, vol. 84, no. 4, pp. 1085-1117, doi: 10.2308/accr.2009.84.4.1085.

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Title The effect of auditor quality on financing decisions
Author(s) Chang, XinORCID iD for Chang, Xin
Dasgupta, Sudipto
Hilary, Gilles
Journal name Accounting review
Volume number 84
Issue number 4
Start page 1085
End page 1117
Total pages 48
Publisher American Accounting Association
Place of publication Sarasota, Fla.
Publication date 2009-07
ISSN 0001-4826
Keyword(s) auditor quality
financial decisions
adverse selection
capital structure
Summary We present a model and provide empirical evidence showing that auditor quality affects the financing decisions of companies, and that higher audit quality reduces the impact of market conditions on client financial decisions and capital structure. Consistent with our analytical predictions, we find that companies audited by Big 6 firms are more likely to issue equity as opposed to debt than are those audited by small audit firms. We also find that companies audited by Big 6 auditors are able to make larger equity issues than are those audited by small auditors, but the difference narrows when market conditions improve. Additional results show that the debt ratios of companies decrease less in response to favorable market conditions when auditor quality is high, at least over the medium term.
Language eng
DOI 10.2308/accr.2009.84.4.1085
Field of Research 150205 Investment and Risk Management
1501 Accounting, Auditing And Accountability
Socio Economic Objective 970115 Expanding Knowledge in Commerce
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2009, American Accounting Association
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Document type: Journal Article
Collections: Faculty of Business and Law
Department of Finance
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