Audit Fees and Capital Structure Decision

36 Pages Posted: 12 Feb 2015

See all articles by Anmol Bhatia

Anmol Bhatia

La Trobe University

Muhammad Jahangir Ali

La Trobe University, Department of Accounting, Data Analytics, Economics and Finance

Balasingham Balachandran

Monash University - Monash University Malaysia; Financial Research Network (FIRN); La Trobe University - School of Economics and Finance

Doureige J. Jurdi

La Trobe University; Financial Research Network (FIRN)

Date Written: February 12, 2015

Abstract

Prior studies in the US have examined the impact of Big 6 auditors on financing decision and find that firms engaged with Big 6 auditors tend to issue equity as opposed to debt. Using a broad US sample, this study examines the impact of audit fees on capital structure decision. We use audit fees as a proxy for audit quality. Our results show that firms with higher audit fees tend to have higher leverage. We further find that firms paying high audit fees are more inclined to issue debt. As a robustness check we also use expected audit fees as a proxy for audit quality and find consistent results. These findings suggest that the impact of audit fees has significant effect on capital structure decision.

Keywords: audit quality; capital structure; Big 6 auditors; audit fee

JEL Classification: G14, G32

Suggested Citation

Bhatia, Anmol and Ali, Muhammad Jahangir and Balachandran, Balasingham and Jurdi, Doureige J., Audit Fees and Capital Structure Decision (February 12, 2015). 2015 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=2564129 or http://dx.doi.org/10.2139/ssrn.2564129

Anmol Bhatia

La Trobe University ( email )

Department of Economics and Finance
Victoria 3552, 3086
Australia

Muhammad Jahangir Ali

La Trobe University, Department of Accounting, Data Analytics, Economics and Finance ( email )

Bundoora
Melbourne, 3086
Australia

Balasingham Balachandran (Contact Author)

Monash University - Monash University Malaysia ( email )

Sunway Campus
Malaysia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

La Trobe University - School of Economics and Finance ( email )

School of Business
Monash University Malaysia
Bandar Sunway, Selangor 47500
Malaysia

Doureige J. Jurdi

La Trobe University ( email )

Department of Economics and Finance
Melbourne, 3086
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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