Title: The value of a voluntary audit in debt financing: evidence from small privately held companies

Authors: Sanna Tervo; Annukka Jokipii

Addresses: University of Vaasa, Accounting and Finance, P.O. Box 700, FI-65101, Vaasa, Finland ' University of Vaasa, Accounting and Finance, P.O. Box 700, FI-65101, Vaasa, Finland

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.

Keywords: voluntary audit; financial distress; financial statement; discretionary accruals; financial information; reliability; privately held companies; debt financing; financial information quality; interest rate; accounting; performance evaluation; Finland.

DOI: 10.1504/IJAAPE.2018.095103

International Journal of Accounting, Auditing and Performance Evaluation, 2018 Vol.14 No.4, pp.291 - 314

Received: 16 Jun 2016
Accepted: 18 Aug 2017
Published online: 01 Oct 2018 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article