Cross-Country Evidence on the Importance of Auditor Choice to Corporate Debt Maturity

59 Pages Posted: 29 Nov 2014

See all articles by Sadok El Ghoul

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Sorin Rizeanu

University of Victoria

Date Written: November 27, 2014

Abstract

We examine the importance of Big Four audits in reducing agency costs evident in corporate debt maturity worldwide. Analyzing a large sample of public firms from 42 countries reveals that the fraction of long-term debt in firms’ capital structures rises with the presence of a Big Four auditor, suggesting that higher-quality audits substitute for short-term debt for monitoring purposes. In additional analyses, we find that the role that auditor choice plays in debt maturity is concentrated in firms from countries with strong legal institutions governing property rights and creditor rights. Collectively, our research implies that Big Four audits matter to corporate debt maturity, although the impact is isolated in firms operating in countries with more protective legal regimes.

Keywords: Audit quality, corporate governance, legal institutions, debt maturity

JEL Classification: G34; G32

Suggested Citation

El Ghoul, Sadok and Guedhami, Omrane and Pittman, Jeffrey A. and Rizeanu, Sorin, Cross-Country Evidence on the Importance of Auditor Choice to Corporate Debt Maturity (November 27, 2014). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2531466

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Sorin Rizeanu

University of Victoria ( email )

3800 Finnerty Rd
Victoria, British Columbia V8P 5C2
Canada

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