Scandinavian Working Papers in Economics
HUI Working Papers,
HUI Research
No 132: Do audited firms have lower cost of debt?
Asif Huq, Fredrik Hartwig and Niklas Rudholm ()
Additional contact information
Asif Huq: School of Technology and Business Studies, Postal: Dalarna University, Borlänge, Sweden
Fredrik Hartwig: School of Technology and Business Studies, Postal: Dalarna University, Borlänge, Sweden,
Niklas Rudholm: HUI Research, Postal: Stockholm, Sweden
Abstract: The purpose of this study is to investigate if audited financial statements add value for firms in the private debt market. Using an instrumental variable method, we find that firms with audited financial statements, on average, save 1.26 percentage points on cost of debt compared to firms with unaudited financial statements. We also find that using the big, well-known auditing firms does not yield additional cost of debt benefits. Lastly, we find that the effect of audit on cost of debt varies between industries. As such, we find that firms in industries that have been identified in previous studies to have a more complex information structure, and therefore more complex auditing process, also save more on cost of debt relative to other industries when audited.
Keywords: Audit reform; Audit complexity; SMEs; Private limited firms
36 pages, May 2, 2018
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