Document Type

Journal Article

Department/Unit

Department of Accountancy and Law

Title

Auditor size, tenure, and bank loan pricing

Language

English

Abstract

Using a large sample of U. S. bank loan data from 1996 to 2008, we investigate the relation between two auditor characteristics, namely, auditor size and tenure, and loan interest rates. Our results show the following: First, we find that the loan interest rate is significantly lower for borrowers with prestigious Big 4 auditors than for borrowers with non-Big 4 auditors. Second, we find that auditor tenure is negatively associated with the loan interest rate, suggesting that a long client-auditor relationship lowers the loan borrowing cost. Third, we find that the negative association between auditor size and loan rate is more pronounced for transaction-based term loans than for relationship-based revolving loans. Fourth, our sub-period tests show that our results are driven by the post-Sarbanes-Oxley Act period. Our study provides direct evidence that auditor size and tenure are incremental credit risk-reducing factors in the bank loan market. © 2011 Springer Science+Business Media, LLC.

Keywords

Auditor size, Auditor tenure, Loan pricing, Loan rate

Publication Date

2013

Source Publication Title

Review of Quantitative Finance and Accounting

Volume

40

Issue

1

Start Page

75

End Page

99

Publisher

Springer Verlag

DOI

10.1007/s11156-011-0270-z

Link to Publisher's Edition

http://dx.doi.org/10.1007/s11156-011-0270-z

ISSN (print)

0924865X

ISSN (electronic)

15737179

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