Deakin University
Browse

File(s) under permanent embargo

The effect of auditor quality on financing decisions

journal contribution
posted on 2009-07-01, 00:00 authored by Xin Chang, S Dasgupta, G Hilary
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.

History

Journal

Accounting review

Volume

84

Issue

4

Pagination

1085 - 1117

Publisher

American Accounting Association

Location

Sarasota, Fla.

ISSN

0001-4826

eISSN

1558-7967

Language

eng

Publication classification

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

Copyright notice

2009, American Accounting Association

Usage metrics

    Research Publications

    Categories

    No categories selected

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC