دانلود رایگان مقاله انگلیسی هزینه بدهی و ویژگی های شرکت های حسابداری - امرالد 2018

Abstract

Purpose – Audit firm bankruptcy can have significant negative impacts on the stock prices of client firms. The purpose of this paper is to identify determinants of audit firm bankruptcy risk as measured by costs of debt. Design/methodology/approach – Using audit firm data publicly available in Korea, this study empirically examines whether client portfolio, financial, and organizational characteristics are associated with the weighted average interest rates assumed by auditors. Findings – The authors find empirical evidence that audit firms’ client portfolio characteristics, including the incidence (or number) of lawsuits against the auditor, the proportion of audit clients under surveillance, the proportion of initial audit engagements, and the proportion of listed companies of audit clients, are positively associated with the cost of debt. The authors also find several financial and organizational characteristics associated with the cost of debt. Practical implications – The findings of this study suggest that client portfolio characteristics as well as financial and organizational characteristics are important determinants of the cost of debt in audit firms, and that these characteristics are different from those of firms in other industries. Identifying the determinants of audit firms’ cost of debt provides insight to regulators, client firms, and capital market participants. Originality/value – This study examines the default risk of audit firms that play an important monitoring role in capital markets. By utilizing unique data about audit firms available in Korea, this study is the first study to empirically examine the effect of detailed audit firm characteristics on audit firm’s default risk.

5. Conclusion

Considering the publicity associated with audit services and the number and variety of audit report users, the ripple effect of default by audit firms is significant. Therefore, it is important to identify the determinants of audit firms’ cost of debt. Although the cost of debt may not be directly related to the default risk of audit firms, examining the cost of debt is important because the resulting information can be useful to regulators, audit clients, and investors. Audit firms may have a significant amount of debt, which may lead to financial distress. Also, financial expenses that must be paid within a short time period increase audit firms’ incentives to lowball their clients in order to increase liquidity. This practice can increase the likelihood of opinion shopping, thereby reducing audit quality. Thus, examining determinants of default in audit firms can help interested parties understand the potential risk associated with audit quality. Prior studies report that capital market reacts negatively for those clients with Arthur Anderson when Andersen closed their business (see Krishnamurthy et al., 2006). Andersen’s failure also affected the audit quality of former Andersen clients (Nagy, 2005) and audit fees (Kealey et al., 2007). Thus, this study provides useful implications to capital market participants including investors and regulators and adds to the literature on the effect of characteristics of a unique service industry on the cost of debt. In this study, we examine the association between audit firm and client portfolio characteristics and the cost of debt in audit firms. Financial institutions determine the interest rates for audit firms based on their evaluation of the likelihood of default. Furthermore, interest rates reflect the risk premiums for debtors required by creditors. Risk premiums are determined based on independent evaluations by financial institutions of the debtor’s ability to repay. When default risk is estimated as low (high), risk premiums are low (high); therefore, low (high) interest rates are applied.