Audit quality and the cost of debt in private firms: evidence from the Brazilian sugarcane industry
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Evidence is mixed regarding the economic benefits achieved by companies hiring large firms to audit their financial statements. The studies approaching this theme concentrate mostly on public companies in developed markets, while the effect on private firms in emerging markets is still an open question. This research explores this gap by analyzing whether private firms in the Brazilian sugarcane industry audited by a Big 4 have a lower cost of debt than those audited by a non-Big 4. For that, a unique, hand-collected, dataset was used. This paper contributes to the literature by providing evidence of the role of audit institutions in an environment lacking studies on private firms’ financial reports, especially in emerging economies. The empirical analysis does not indicate that the cost of debt is negatively influenced by the verification of financial statements by a high-quality auditor. Banks and credit unions, as the primary funding sources of the industry, condition the cost of debt reduction to the levels of tangibility, leverage, and profitability. We also contribute to the literature by demonstrating that lenders may have other soft information sources, obtained through banking relationship, which may substitute higher-quality auditor. The results hold after robustness checks and endogeneity concerns.
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Audit quality and the cost of debt in private firms: evidence from the Brazilian sugarcane industry
In: International Food and Agribusiness Management ReviewSearch for other papers by Aviner Augusto Silva Manoel in
Current site
Google Scholar
PubMed
Search for other papers by Marcelo Botelho da Costa Moraes in
Current site
Google Scholar
PubMed
Search for other papers by David Ferreira Lopes Santos in
Current site
Google Scholar
PubMed
Search for other papers by Gabriel Pereira Pündrich in
Current site
Google Scholar
PubMed
Evidence is mixed regarding the economic benefits achieved by companies hiring large firms to audit their financial statements. The studies approaching this theme concentrate mostly on public companies in developed markets, while the effect on private firms in emerging markets is still an open question. This research explores this gap by analyzing whether private firms in the Brazilian sugarcane industry audited by a Big 4 have a lower cost of debt than those audited by a non-Big 4. For that, a unique, hand-collected, dataset was used. This paper contributes to the literature by providing evidence of the role of audit institutions in an environment lacking studies on private firms’ financial reports, especially in emerging economies. The empirical analysis does not indicate that the cost of debt is negatively influenced by the verification of financial statements by a high-quality auditor. Banks and credit unions, as the primary funding sources of the industry, condition the cost of debt reduction to the levels of tangibility, leverage, and profitability. We also contribute to the literature by demonstrating that lenders may have other soft information sources, obtained through banking relationship, which may substitute higher-quality auditor. The results hold after robustness checks and endogeneity concerns.
| All Time | Past 365 days | Past 30 Days | |
|---|---|---|---|
| Abstract Views | 0 | 0 | 0 |
| Full Text Views | 270 | 179 | 13 |
| PDF Views & Downloads | 355 | 241 | 14 |
