Joint Audit, Political Connections and Cost of Debt Capital

22 Pages Posted: 10 Oct 2017

See all articles by Ahmed Al‐Hadi

Ahmed Al‐Hadi

Sultan Qaboos University

Ahsan Habib

Massey University - School of Accountancy; Massey University

Khamis Al‐Yahyaee

Sultan Qaboos University

Baban Eulaiwi

Curtin University - School of Accounting

Date Written: November 2017

Abstract

We investigate the association between joint audit and cost of debt for a sample of non‐financial, publicly listed firms from the Gulf Cooperation Council (GCC) countries. Although the conventional wisdom suggests that “two heads are better than one”, empirical evidence on the beneficial impact of joint audit has not been convincingly documented. We attempt to shed further insights into this debate, using data from the GCC countries. We document a significantly negative effect of joint audit on cost of debt in the GCC countries. This effect is more pronounced in cases where at least one of the joint audit firms is a Big 4 auditor. We then investigate whether political connections with royal families moderate the association between joint audit and cost of debt. Our results suggest that the beneficial effects of joint audits, in terms of a lower cost of debt, are greater in firms with such political connections.

Keywords: Gulf Cooperation Council, joint audit, cost of debt, royal family, Big 4 auditor

Suggested Citation

Al‐Hadi, Ahmed and Habib, Ahsan and Al‐Yahyaee, Khamis and Eulaiwi, Baban, Joint Audit, Political Connections and Cost of Debt Capital (November 2017). International Journal of Auditing, Vol. 21, Issue 3, pp. 249-270, 2017, Available at SSRN: https://ssrn.com/abstract=3050218 or http://dx.doi.org/10.1111/ijau.12092

Ahmed Al‐Hadi (Contact Author)

Sultan Qaboos University

Ahsan Habib

Massey University - School of Accountancy ( email )

Auckland
New Zealand

Massey University ( email )

Auckland
New Zealand

Khamis Al‐Yahyaee

Sultan Qaboos University

PO Box 20
Al-khod SQU 123
Muscat
Oman

Baban Eulaiwi

Curtin University - School of Accounting ( email )

Australia

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