TITLE:
Corporate Governance Practices and Audit Quality: Do They Matter for the Cost of Debt?
AUTHORS:
Sami Bacha
KEYWORDS:
Corporate Governance, Audit Quality, Cost of Debt, Ownership Structure, Audit Committee
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.7,
September
17,
2019
ABSTRACT: This paper sheds light on the effect of corporate governance
practices and audit quality on the cost of debt. Particularly, we investigate
the effect of the ownership structure and the audit committee independance, as
well as the reputation of the external auditor, on the cost of debt. Based on a
sample of Tunisian listed companies over the period 2007 to 2016 and using OLS regression models
estimated with robust standard errors, our findings show that the cost of debt
is inversely related to the director board size and the ownership
concentration. Tunisian debtholders favour monitoring mechanisms that are
likely to limit managerial opportunism and consider board monitoring
effectiveness and the presence of blockholders as a source of greater
assurance. The results also reveal evidence of a debt pricing effect of audit
quality as measured by auditor size (Big4). The findings report, however, that
the board composition and the presence of managerial shareholders, as well as
the independence of
audit committee have non-significant effect on the cost of debt.