The authors would like to thank Terry Levesque, Ping Zhang, and Flora Niu for their helpful comments. The authors acknowledge financial support provided by the Social Sciences and Humanities Research Council of Canada — Standard Research Grant.
The Impact of Corporate Governance and Audit Quality on the Cost of Private Loans*
Article first published online: 18 FEB 2010
2009 Canadian Academic Accounting Association
Volume 8, Issue 4, pages 277–304, November 2009
How to Cite
Chu, L., Mathieu, R. and Mbagwu, C. (2009), The Impact of Corporate Governance and Audit Quality on the Cost of Private Loans. Accounting Perspectives, 8: 277–304. doi: 10.1506/ap.8.4.2
- Issue published online: 18 FEB 2010
- Article first published online: 18 FEB 2010
- Audit quality;
- Bank loan and monitoring;
- Corporate governance
The objective of this paper is to examine whether banks discriminate between firms on the basis of their financial condition when assessing the credit default risk, and to what extent corporate governance and auditor quality mitigate such risks in the pricing of new bank loans. The results indicate that, depending on the probability of bankruptcy, banks rely on different monitoring devices. For firms with a low probability of bankruptcy, banks do not rely on the quality of corporate governance or the auditor's industry specialization. However, auditor tenure and a change in auditor affect the spread. For firms with a high probability of bankruptcy, the spread is adjusted for the quality of corporate governance and the auditor's specialization. These results are robust to alternative specifications and measures.