Audit Profession Development and Bank Loan Pricing

55 Pages Posted: 16 Feb 2017

See all articles by Wenxia Ge

Wenxia Ge

University of Ottawa

Tony Kang

University of Nebraska - Lincoln

Byron Y. Song

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law

Gaoguang (Stephen) Zhou

Hong Kong Baptist University

Date Written: February 15, 2017

Abstract

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

Suggested Citation

Ge, Wenxia and Kang, Tony and Song, Byron Y. and Zhou, Gaoguang (Stephen), Audit Profession Development and Bank Loan Pricing (February 15, 2017). Available at SSRN: https://ssrn.com/abstract=2917157 or http://dx.doi.org/10.2139/ssrn.2917157

Wenxia Ge

University of Ottawa ( email )

55 Laurier Avenue East
Ottawa, Ontario K1N 6N5
Canada

Tony Kang

University of Nebraska - Lincoln ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Byron Y. Song

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law ( email )

Kowloon Tong, Kowloon
Hong Kong

Gaoguang (Stephen) Zhou (Contact Author)

Hong Kong Baptist University ( email )

Kowloon Tong
Hong Kong
China

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