Abstract

http://ssrn.com/abstract=1287544
 
 

References (35)



 
 

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The Effect of Auditor Quality on Financing Decisions


Xin (Simba) Chang


Nanyang Business School

Sudipto Dasgupta


Hong Kong University of Science & Technology - Department of Finance

Gilles Hilary


INSEAD

October 21, 2008

The Accounting Review, Forthcoming

Abstract:     
We present a model and provide empirical evidence showing that auditor quality affects companies' financing decisions, and that better 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.

Number of Pages in PDF File: 48

JEL Classification: M49, G32

Accepted Paper Series


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Date posted: October 22, 2008 ; Last revised: August 29, 2013

Suggested Citation

Chang, Xin (Simba) and Dasgupta, Sudipto and Hilary, Gilles, The Effect of Auditor Quality on Financing Decisions (October 21, 2008). The Accounting Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1287544 or http://dx.doi.org/10.2139/ssrn.1287544

Contact Information

Xin Chang
Nanyang Business School ( email )
S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore
HOME PAGE: http://www.ntu.edu.sg/home/changxin
Sudipto Dasgupta
Hong Kong University of Science & Technology - Department of Finance ( email )
Clear Water Bay, Kowloon
Hong Kong
852-2358-7666 (Phone)
852-2358-1749 (Fax)
Gilles Hilary (Contact Author)
INSEAD ( email )
Boulevard de Constance
77305 Fontainebleau Cedex
France
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