Loan Initiation and Auditing Pricing

Abstract:     
In this study, we examine the effect of lenders’ certification for pricing of auditing services for the borrowers. We find that loan initiation is associated with significant reduction in auditing fees. The decrease in auditing fees is more pronounced for non-syndicated loans and when the lending amount is large. We also show that the certification effect is stronger among firms associated with higher ex ante risk. Our study contributes to both auditing and banking literature by documenting that lenders’ certification has significant impact on one of the important capital market participants, auditor.

Number of Pages in PDF File: 36

Keywords: auditing pricing, certification of lenders

working papers series