Auditor fees and cost of debt

Dan S Dhaliwal, Cristi A. Gleason, Shane Heitzman, Kevin D. Melendrez

Research output: Contribution to journalArticle

44 Citations (Scopus)

Abstract

Using a sample of 560 new debt issues, we investigate the relation between audit, nonaudit, and total auditor fees and firms' cost of debt. The Securities and Exchange Commission (SEC) argues that fees from nonaudit services weaken auditor independence, reduce financial statement reliability, and increase firms' cost of capital. To test this assertion, we examine the association between auditor fees and the cost of debt, as well as the effects of auditor fees on the relation between financial statement information and the cost of debt. We find evidence that nonaudit fees are directly related to the cost of debt for investment-grade issuers. Our results are robust to controlling for auditor tenure and firm governance. We also find evidence that the association between earnings and the cost of debt decreases as audit fees increase. We find no evidence that auditor fees directly affect the cost of debt for the non-investment-grade firms, but we do find that the association between earnings and the cost of debt decreases as nonaudit fees increase.

Original languageEnglish (US)
Pages (from-to)1-22
Number of pages22
JournalJournal of Accounting, Auditing and Finance
Volume23
Issue number1
StatePublished - Dec 2008

Fingerprint

Auditor's fees
Cost of debt
Financial statements
Non-audit fees
Audit fees
Audit
Fees
Cost of capital
Governance
Securities and Exchange Commission
Auditor independence
Auditor tenure
Debt
Nonaudit services

Keywords

  • Auditor independence
  • Bonds
  • Cost of capital

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Economics, Econometrics and Finance (miscellaneous)

Cite this

Dhaliwal, D. S., Gleason, C. A., Heitzman, S., & Melendrez, K. D. (2008). Auditor fees and cost of debt. Journal of Accounting, Auditing and Finance, 23(1), 1-22.

Auditor fees and cost of debt. / Dhaliwal, Dan S; Gleason, Cristi A.; Heitzman, Shane; Melendrez, Kevin D.

In: Journal of Accounting, Auditing and Finance, Vol. 23, No. 1, 12.2008, p. 1-22.

Research output: Contribution to journalArticle

Dhaliwal, DS, Gleason, CA, Heitzman, S & Melendrez, KD 2008, 'Auditor fees and cost of debt', Journal of Accounting, Auditing and Finance, vol. 23, no. 1, pp. 1-22.
Dhaliwal DS, Gleason CA, Heitzman S, Melendrez KD. Auditor fees and cost of debt. Journal of Accounting, Auditing and Finance. 2008 Dec;23(1):1-22.
Dhaliwal, Dan S ; Gleason, Cristi A. ; Heitzman, Shane ; Melendrez, Kevin D. / Auditor fees and cost of debt. In: Journal of Accounting, Auditing and Finance. 2008 ; Vol. 23, No. 1. pp. 1-22.
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