The Impact of National and Office-Specific Auditor Industry Specialist on Bank Loan Contracting

Posted: 8 Jun 2013

See all articles by Chen‐Lung Chin

Chen‐Lung Chin

National Chengchi University

Lu Chien-Ju

Independent

Yi-Chun Chen

National Chengchi University (NCCU) - Department of Accounting

Date Written: June 5, 2013

Abstract

This paper examines the role played by national-level versus city-specific industry audit experts in mitigating the information asymmetries between borrowers and syndicated loan lenders. Using the framework developed in Ferguson et al. (2003) and Francis et al. (2005), we document that lenders significantly decreases price when borrowers engages auditors who are top-ranked industry leader at both national and city levels. In contrast, we find no such effect for relational lenders. These results suggest that auditor specialist presence substitutes for relational lenders’ information advantage. Similarly, further analyses reveal that non-price terms are more favorable (i.e., longer maturity and lower likelihood of being secured) for borrowers appointing city-specific industry audit experts among non-relational borrowers but not among relational borrowers.

Keywords: debt contracting, auditor industry expertise, national level industry specialist, city level industry specialist

Suggested Citation

Chin, Chen Lung and Chien-Ju, Lu and Chen, Yi-Chun, The Impact of National and Office-Specific Auditor Industry Specialist on Bank Loan Contracting (June 5, 2013). Available at SSRN: https://ssrn.com/abstract=2275105

Chen Lung Chin

National Chengchi University ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei 11623
Taiwan

Lu Chien-Ju

Independent ( email )

No Address Available

Yi-Chun Chen (Contact Author)

National Chengchi University (NCCU) - Department of Accounting ( email )

Taiwan

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