Does leverage influence auditor choice? A cross-country analysis
AbstractThis article investigates the impact of legal environment on the relationship between leverage and auditor choice in 10 European countries. We demonstrate that the relationship between the choice of a high-quality auditor and firm leverage varies significantly across countries. This finding suggests the absence of a systematic demand for auditing to mitigate agency problems between insiders and debtholders. These differences are explained through legal environment indicators. We create in this aim an index to measure auditor liability exposure. Our results provide evidence that the stronger the protection of creditor rights and disclosure requirements, the higher the demand for audit quality by highly-leveraged companies. Inversely, the auditor liability exposure has a negative impact on the link between leverage and auditor choice.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Financial Economics.
Volume (Year): 18 (2008)
Issue (Month): 9 ()
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Other versions of this item:
- Géraldine Broye & Laurent Weill, 2008. "Does leverage influence auditor choice? A cross-country analysis," ULB Institutional Repository 2013/14152, ULB -- Universite Libre de Bruxelles.
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- C. Piot & A. Schatt, 2010.
"La réglementation de l'audit est-elle dans l'intérêt public : quelques enseignements du modèle français,"
- Charles Piot & Alain Schatt, 2010. "La réglementation de l’audit est-elle dans l’intérêt public:quelques enseignements du modèle français," Working Papers FARGO 1100606, Université de Bourgogne - Crego EA 7317/Fargo (Research center in Finance,organizational ARchitecture and GOvernance).
- Jamel Azibi & Hubert Tondeur & Mohamed Tahar Rajhi, 2010. "Auditor Choice And Intitutionnel Investor Characteristics After The Enron Scandal In The French Context," Post-Print hal-00481076, HAL.
- Reheul, Anne-Mie & Van Caneghem, Tom & Verbruggen, Sandra, 2011. "Auditor choice in the Belgian nonprofit sector: a behavioral perspective," Working Papers 2011/36, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
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