Common Auditors and Private Bank Loans

84 Pages Posted: 28 Apr 2020 Last revised: 14 May 2020

See all articles by Jere R. Francis

Jere R. Francis

Maastricht University

Wei Wang

Temple University - Department of Accounting

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Date Written: April 30, 2020

Abstract

We show that when banks and borrowers share the same audit firm, borrowers receive lower interest rates, after controlling for potentially confounding director connectedness. The common auditor effect is observed only for opaque borrowers, and is greatest when the same audit engagement office audits the bank and borrower. A common auditor connection also matters more for longer-tenured auditors, for geographically proximate borrowers, and when the syndicate involves fewer lenders. The effect does not hold for auditors recently sanctioned by the Public Company Accounting Oversight Board (PCAOB). Finally, the interest rate discount is not the consequence of homophily or biased decision-making, based on a comparison of post-loan performance of firms with common-auditor loans versus those with non-common-auditor loans.

Keywords: common auditor; bank loan pricing; network effects; trust

Suggested Citation

Francis, Jere R. and Wang, Wei, Common Auditors and Private Bank Loans (April 30, 2020). Available at SSRN: https://ssrn.com/abstract=3568586 or http://dx.doi.org/10.2139/ssrn.3568586

Jere R. Francis (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Wei Wang

Temple University - Department of Accounting ( email )

Alter Hall 450
1801 Liacouras Walk
Philadelphia, PA 19122
United States

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