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The role of shared auditors in loan contracts

Author

Listed:
  • Aguir, Wael
  • Ater, Brandon
  • Anabila, Andrew A.
  • Sobngwi, Christian Kuiate

Abstract

We investigate the private debt contracting implications of when the lender and borrower share the same audit firm. Specifically, we posit that when the lender and borrower share the same audit firm, this shared auditor relationship provides lenders with privileged access to a trustworthy third party that can be used to verify information about borrowers’ financial information and leads to gains in contracting efficiency to the benefit of both the lender and borrower. Our findings indicate that the shared auditor relationship is associated with a decrease in the cost of debt and the likelihood of future default. Our findings highlight the role played by external auditors in facilitating lenders’ screening and monitoring efforts in private debt contracts for public firms.

Suggested Citation

  • Aguir, Wael & Ater, Brandon & Anabila, Andrew A. & Sobngwi, Christian Kuiate, 2022. "The role of shared auditors in loan contracts," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 87-97.
    • Handle: RePEc:eee:quaeco:v:86:y:2022:i:c:p:87-97
    DOI: 10.1016/j.qref.2022.05.005
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    More about this item

    Keywords

    Loan contracts; Cost of debt; Audit quality; Shared auditors;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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