What matters in cost of debt: audit partner public-client specialization or busyness?
ISSN: 0268-6902
Article publication date: 19 October 2020
Issue publication date: 15 December 2020
Abstract
Purpose
This study aims to examine whether audit partner public-client specialization and busyness impact the cost of debt.
Design/methodology/approach
This paper uses data from companies in Thailand for the 1998–2016 period. To measure the cost of debt, this study uses the realized interest cost, measured as the total interest expense for the one year ahead divided by the average value of total debt outstanding during that year.
Findings
The results show a positive association between the cost of debt and two measures of public-client specialization and busyness, which are the number of public clients audited by an individual audit partner in each year and the proportion of the number of public clients divided by the number of total clients in an individual audit partner’s portfolio.
Originality/value
In the literature, there is a lack of research on whether a higher number of public clients in an audit partner’s portfolio leads to better or worse perceived audit quality. This study extends prior literature by examining whether creditors’ perception of audit quality depends on the audit partner specialization or busyness and specifically, on the number of public clients of the auditor. The findings indicate that public-client busyness of a particular audit partner, rather than the audit partner public-client specialization, matters in the cost of debt.
Keywords
Acknowledgements
The author would like to thank the editor and the two anonymous reviewers for their valuable comments and suggestions, which greatly improved this manuscript. The author also acknowledge the comments from participants at the 2019 Accounting and Finance Association of Australia and New Zealand (AFAANZ) Conference.
Citation
Sanoran, K.(L). (2020), "What matters in cost of debt: audit partner public-client specialization or busyness?", Managerial Auditing Journal, Vol. 35 No. 9, pp. 1379-1399. https://doi.org/10.1108/MAJ-03-2019-2226
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited