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Short-Term debt maturity structures, credit ratings, and the pricing of audit services

journal contribution
posted on 2010-05-01, 00:00 authored by Ferdinand Gul, J Goodwin
Short-term debt and credit ratings have benefits for financial reporting quality that may be associated with lower audit fees. Using U.S. data for 2003 through 2006, we find that short-term debt is negatively related to audit fees for firms rated by Standard & Poor's, consistent with more monitoring and better governance mechanisms in firms with higher short-term debt. Credit ratings quality is negatively related to audit fees, consistent with ratings quality reflecting a firm's liquidity risk, governance mechanisms, and monitoring from rating agencies. We also find that the negative relation between short-term debt and audit fees is stronger for firms with low-quality credit ratings, consistent with auditors pricing lender monitoring.

History

Journal

Accounting Review

Volume

85

Issue

3

Pagination

877 - 909

ISSN

0001-4826

Publication classification

C Journal article; C1.1 Refereed article in a scholarly journal

Copyright notice

2010, American Accounting Association

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