Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments June 26, 2020 erstellt
Description:
This paper empirically investigates the effect of the extended audit reporting (EAR) adoption on firms’ cost of borrowing. Employing an extensive sample of UK firms over an 8-year period in which we cover pre- and post-significant structural changes in the audit market, our findings are three-fold. First, our results suggest that EAR adoption is significantly and negatively related to the pricing of debt capital. Second, we find that the tone of an EAR is associated with the cost of debt, with a net positive tone having a significant and negative impact on debt pricing. Finally, consistent with the auditors’ perception of firms’ risks, our findings show that the number and/or length of risk of material misstatements that are disclosed as key audit matters are positively associated with lenders’ evaluation of firms’ risk. These results support our predictions that EAR may reduce monitoring costs and convey more credible information to debt providers about auditees’ actual level of risk exposures. These results have significant implications for audit firms, corporate leaders, policymakers and regulatory bodies