Audit Profession Development and Bank Loan Pricing
55 Pages Posted: 16 Feb 2017
Date Written: February 15, 2017
This study examines the relation between country-level audit profession development and bank loan pricing around the world. Using a sample of bank loan contracts from 36 countries during 2002–2010, we find that stronger audit profession development is associated with lower loan spreads, and such effect is observed for Big 4 clients and firms in countries with strong rule of law. Further analysis suggests that creditors view auditor litigation environment as the most relevant aspect of audit profession development in their lending decisions. Our results are robust to a battery of sensitivity tests.
Keywords: Audit profession development; Bank loan; Legal enforcement; Accounting conservatism
JEL Classification: F34, K20, M41, M42
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