Audit fees and cost of debt: differences in the credibility of voluntary and mandatory audits
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Gandía, Juan; Huguet, David
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Aquest document és un/a article, creat/da en: 2020
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Despite the extensive research on audit fees, few studies have examined the effect of audit fees on the cost of debt. Based on the credence goods theory, we examine whether the effect of audits on the cost of debt is affected by the type of audit (voluntary or mandatory) and the audit fees, as well as whether there is a combined effect of voluntary audits and audit fees, so that the effect of voluntary audits on the cost of debt is affected by audit fees. Using a sample of Spanish SMEs, we find an asymmetric effect of audit fees on the cost of debt: higher audit fees are associated with a lower cost of debt for voluntarily audited companies, while the association is not significant for mandatory audits. Results suggest that, although the type of audit and the audit fees do not have a direct effect on the credibility of audits, the combination of both factors has relevance for lenders, so that higher audit fees in the voluntary setting are positively valued by them. The study contributes to the literature on auditing by showing that voluntary audits are relevant for capital providers as long as audits are perceived of quality.
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Gandía, Juan Huguet, David 2020 Audit fees and cost of debt: differences in the credibility of voluntary and mandatory audits Economic Research-Ekonomska Istrazivanja 33 1 3071 3092 |
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