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Does leverage influence auditor choice? A cross-country analysis

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Author Info

  • Geraldine Broye
  • Laurent Weill

Abstract

This 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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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100701222325
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 18 (2008)
Issue (Month): 9 ()
Pages: 715-731

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Handle: RePEc:taf:apfiec:v:18:y:2008:i:9:p:715-731

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Cited by:
  1. 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.
  2. C. Piot & A. Schatt, 2010. "La réglementation de l'audit est-elle dans l'intérêt public : quelques enseignements du modèle français," Post-Print halshs-00534758, HAL.
  3. 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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