Ahmet C. Kurt, Mary J. Becker, Rani Hoitash, Udi Hoitash
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Financial Constraints, Auditing, and External Financing
This paper examines the role of costly audit signals in future external financing activity of financially constrained firms. We document that when facing higher financial constraints, firms pay higher audit fees and have their audit reports completed sooner. Equally important, we find that costlier and timelier audits are associated with a greater amount of future financing raised by equity-seeking, but not debt-seeking, constrained firms. Our results are robust to controlling for various audit characteristics and risk factors. Additional analyses show that equity-seeking constrained firms that underwent costlier audits exhibit more favorable outcomes with respect to long-run stock performance and investment efficiency following seasoned equity offerings. Our findings suggest that while financially constrained firms are pressured to make cuts across various expenditure categories, negotiating lower audit fees in the face of higher financial constraints may not be a wise strategy.
期刊介绍:
Devoted to the advancement of accounting knowledge, it provides a forum for the publication of high quality accounting research manuscripts. The journal acknowledges its European origins and the distinctive variety of the European accounting research community. Conscious of these origins, European Accounting Review emphasises openness and flexibility, not only regarding the substantive issues of accounting research, but also with respect to paradigms, methodologies and styles of conducting that research. Though European Accounting Review is a truly international journal, it also holds a unique position as it is the only accounting journal to provide a European forum for the reporting of accounting research.