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The Association between Big4 and Cost of Debt in Private Firms


  • Stefano Azzali
  • Tatiana Mazza


This study investigates the association between choice of a Big4 audit firm and Cost of Debt compared with non-Big4 in Italian firms. Based on a sample of Italian companies audited by an audit firm in the period 2007-2012, we perform OLS regressions to test the Big4 association with Cost of Debt. Results confirm our expectation that audit firm size is a significant criterion of audit firm choice and we find that Big4 is associated with lower Cost of Debt than non-Big4 in private firms. The choice of Big4 audit firm reduce the specific agency conflict between banks and owner/management in private firms. We also find that private firms benefit from lower Cost of Debt than public companies. This research makes a contribution to the literature by extending previous results (Gul et al., 2013, Cano Rodriguez and Alegria, 2012, Karjalainen, 2011) to private firms and to the setting of Italy. Results may also be useful for companies choosing auditors in private firms and in the mitigation of agency conflict.

Suggested Citation

  • Stefano Azzali & Tatiana Mazza, 2017. "The Association between Big4 and Cost of Debt in Private Firms," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2017(1), pages 63-82.
  • Handle: RePEc:fan:frfrfr:v:html10.3280/fr2017-001003

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    References listed on IDEAS

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