---
_id: '37136'
abstract:
- lang: eng
  text: This study examines the relation between voluntary audit and the cost of debt
    in private firms. We use a sample of 4,058 small private firms operating in the
    period 2006‐2017 that are not subject to mandatory audits. Firms decide for a
    voluntary audit of financial statements either because the economic setting in
    which they operate effectively forces them to do so (e.g., ownership complexity,
    export‐oriented supply chain, subsidiary status) or because firm fundamentals
    and/or financial reporting practices limit their access to financial debt, both
    reflected in earnings quality. We use these factors to model the decision for
    voluntary audit. In the outcome analyses, we find robust evidence that voluntary
    audits are associated with higher, rather than lower, interest rate by up to 3.0
    percentage points. This effect is present regardless of the perceived audit quality
    (Big‐4 vs. non‐Big‐4), but is stronger for non‐Big‐4 audits where auditees have
    a stronger position relative to auditors. Audited firms’ earnings are less informative
    about future operating performance relative to unaudited counterparts. We conclude
    that voluntary audits facilitate access to financial debt for firms with higher
    risk that may otherwise have no access to this form of financing. The price paid
    is reflected in higher interest rates charged to firms with voluntary audits –
    firms with higher information and/or fundamental risk.
author:
- first_name: Riste
  full_name: Ichev, Riste
  last_name: Ichev
- first_name: Jernej
  full_name: Koren, Jernej
  last_name: Koren
- first_name: Urska
  full_name: Kosi, Urska
  id: '54068'
  last_name: Kosi
- first_name: Katarina
  full_name: Sitar Sustar, Katarina
  last_name: Sitar Sustar
- first_name: Aljosa
  full_name: Valentincic, Aljosa
  last_name: Valentincic
citation:
  ama: 'Ichev R, Koren J, Kosi U, Sitar Sustar K, Valentincic A. <i>Cost of Debt for
    Private Firms Revisited: Voluntary Audits as a Reflection of Risk</i>.; 2021.'
  apa: 'Ichev, R., Koren, J., Kosi, U., Sitar Sustar, K., &#38; Valentincic, A. (2021).
    <i>Cost of Debt for Private Firms Revisited: Voluntary Audits as a Reflection
    of Risk</i>.'
  bibtex: '@book{Ichev_Koren_Kosi_Sitar Sustar_Valentincic_2021, title={Cost of Debt
    for Private Firms Revisited: Voluntary Audits as a Reflection of Risk}, author={Ichev,
    Riste and Koren, Jernej and Kosi, Urska and Sitar Sustar, Katarina and Valentincic,
    Aljosa}, year={2021} }'
  chicago: 'Ichev, Riste, Jernej Koren, Urska Kosi, Katarina Sitar Sustar, and Aljosa
    Valentincic. <i>Cost of Debt for Private Firms Revisited: Voluntary Audits as
    a Reflection of Risk</i>, 2021.'
  ieee: 'R. Ichev, J. Koren, U. Kosi, K. Sitar Sustar, and A. Valentincic, <i>Cost
    of Debt for Private Firms Revisited: Voluntary Audits as a Reflection of Risk</i>.
    2021.'
  mla: 'Ichev, Riste, et al. <i>Cost of Debt for Private Firms Revisited: Voluntary
    Audits as a Reflection of Risk</i>. 2021.'
  short: 'R. Ichev, J. Koren, U. Kosi, K. Sitar Sustar, A. Valentincic, Cost of Debt
    for Private Firms Revisited: Voluntary Audits as a Reflection of Risk, 2021.'
date_created: 2023-01-17T15:03:08Z
date_updated: 2023-01-18T13:40:40Z
department:
- _id: '635'
- _id: '186'
- _id: '551'
keyword:
- private firms
- voluntary audit
- cost of debt
- self‐selection bias
- risk
language:
- iso: eng
main_file_link:
- url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3853927
status: public
title: 'Cost of Debt for Private Firms Revisited: Voluntary Audits as a Reflection
  of Risk'
type: working_paper
user_id: '88603'
year: '2021'
...
---
_id: '37109'
abstract:
- lang: eng
  text: This study examines the effect of audit on private firms’ cost of debt. We
    use a sample of 1,949 small private firms operating in the period 2006-2010 with
    optional financial statement audit. High quality data allows us to construct a
    more precise interest rate measure than existing studies employ. After controlling
    for obvious sources of demand for voluntary audits (ownership complexity, subsidiary
    status, bank relations), we find a robust central result that voluntary audits
    increase rather than decrease the cost of debt financing, contrary to several
    existing studies. This finding indicates that voluntary audits are generally treated
    as “adopting a label” and penalised by creditors, regardless of the perceived
    auditor quality as a result of the lemon problem in the audit market. Even Big-4
    audits increase the cost of debt, likely as a result due to the lemon problem
    in the audit market, although the increase is smaller than for non-Big-4 audits.
    The results are sensitive to the estimation method used (OLS, Heckman’s two-step,
    PSM) and (sub-)sample selection. We show that disregarding the underlying assumptions
    of these estimation methods may lead to incorrect inferences. Additional analyses
    show that audited firms’ reported earnings are less informative about future operating
    performance than earnings of their unaudited counterparts. Our results also indicate
    that results are sensitive to cost of debt definition and this might have affected
    the results reported in the existing literature.
author:
- first_name: Urska
  full_name: Kosi, Urska
  id: '54068'
  last_name: Kosi
- first_name: Jerney
  full_name: Koren, Jerney
  last_name: Koren
- first_name: Aljosa
  full_name: Valentincic, Aljosa
  last_name: Valentincic
citation:
  ama: 'Kosi U, Koren J, Valentincic A. Does Financial Statement Audit Reduce the
    Cost of Debt of Private Firms? In: ; 2013.'
  apa: Kosi, U., Koren, J., &#38; Valentincic, A. (2013). <i>Does Financial Statement
    Audit Reduce the Cost of Debt of Private Firms?</i> 36th Annual Congress of European
    Accounting Association, Paris, France.
  bibtex: '@inproceedings{Kosi_Koren_Valentincic_2013, title={Does Financial Statement
    Audit Reduce the Cost of Debt of Private Firms?}, author={Kosi, Urska and Koren,
    Jerney and Valentincic, Aljosa}, year={2013} }'
  chicago: Kosi, Urska, Jerney Koren, and Aljosa Valentincic. “Does Financial Statement
    Audit Reduce the Cost of Debt of Private Firms?,” 2013.
  ieee: U. Kosi, J. Koren, and A. Valentincic, “Does Financial Statement Audit Reduce
    the Cost of Debt of Private Firms?,” presented at the 36th Annual Congress of
    European Accounting Association, Paris, France, 2013.
  mla: Kosi, Urska, et al. <i>Does Financial Statement Audit Reduce the Cost of Debt
    of Private Firms?</i> 2013.
  short: 'U. Kosi, J. Koren, A. Valentincic, in: 2013.'
conference:
  end_date: 2013-05-05
  location: Paris, France
  name: 36th Annual Congress of European Accounting Association
  start_date: 2013-05-02
date_created: 2023-01-17T13:25:30Z
date_updated: 2023-01-17T13:51:24Z
department:
- _id: '635'
- _id: '186'
- _id: '551'
extern: '1'
keyword:
- private firms
- voluntary audit
- cost of debt
- self-selection bias
- lemon problem
language:
- iso: eng
main_file_link:
- url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2373987
status: public
title: Does Financial Statement Audit Reduce the Cost of Debt of Private Firms?
type: conference
user_id: '88603'
year: '2013'
...