Voluntary Audit and the Cost of Debt Capital for Privately Held Firms: Korean Evidence

39 Pages Posted: 9 Aug 2005 Last revised: 14 Nov 2007

See all articles by Dan A. Simunic

Dan A. Simunic

University of British Columbia (UBC) - Sauder School of Business

Jeong-Bon Kim

City University of Hong Kong

Michael T. Stein

Old Dominion University

Cheong H. Yi

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: October 2007

Abstract

Using a large sample of privately held Korean companies that are not required to obtain an external audit, this paper examines the informational value of voluntary external audits of financial statements with respect to the cost of debt. We find that private companies with an external audit pay a significantly lower interest rate on their debt than do private companies without an audit. Further, the interest rate on borrowing is significantly lower for Big 4-audited companies than for non-Big 4-audited companies. Finally, we find that a change in a company's status from no audit to being audited - either voluntarily or because the audit became mandatory - leads to significant savings in the cost of borrowing.

Keywords: Voluntary audit, Private companies, Cost of debt, Private debt pricing, Korea

Suggested Citation

Simunic, Dan A. and Kim, Jeong-Bon and Stein, Michael T. and Yi, Cheong H., Voluntary Audit and the Cost of Debt Capital for Privately Held Firms: Korean Evidence (October 2007). Sauder School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=773809 or http://dx.doi.org/10.2139/ssrn.773809

Dan A. Simunic

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
416-486-5361 (Phone)
416-486-6158 (Fax)

Jeong-Bon Kim (Contact Author)

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Michael T. Stein

Old Dominion University ( email )

Strome College of Business
Norfolk, VA VA 23529
United States
17576835495 (Phone)

Cheong H. Yi

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
852-2766-7083 (Phone)
852-2330-9845 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
650
Abstract Views
3,429
rank
52,041
PlumX Metrics