The value of a voluntary audit in debt financing: evidence from small privately held companies
by Sanna Tervo; Annukka Jokipii
International Journal of Accounting, Auditing and Performance Evaluation (IJAAPE), Vol. 14, No. 4, 2018

Abstract: This study examines the effects of voluntary audits on the quality of financial information and the cost of debt in small privately held companies using a sample of 5,254 observations spanning 2007-2012. Prior studies [see Blackwell et al. (1998), Minnis (2011) and Kim et al. (2011)] suggest that audited firms have a significantly lower cost of debt. In contrast to prior studies, our archival evidence shows that firms opting for a voluntary audit pay a slightly higher interest rate on their debt than do the unaudited firms among the set examined. This result is however supported by Niemi et al. (2012) who found that having a voluntary audit is positively associated with financial distress and by Dedman et al. (2014) who found that riskier companies are more likely to purchase voluntary audits.

Online publication date: Mon, 01-Oct-2018

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