비상장기업에서 감사품질이 이익의 구성요소와 부채조달비용간의 관계에 미치는 효과

This paper investigates a association between earnings components and cost of debt depending on audit quality. Specifically, we examine whether a firm's cost of debt decreases when cash flow from operations (total accruals) of the firm increases depending on audit quality. We decompose earnings into cash flows from operations and total accruals, because unlike discretionary accruals, cash flows from operations and total accruals are easier to observe and less susceptible to audit quality. In addition, measurement error for these components is relatively low. We regress cost of debt on the two components of earnings, a dummy variable that captures audit quality (Big 4 auditors vs. other auditors), and the interaction of the audit quality with cash flows from operations and total accruals. High-quality auditors are more likely to deter or detect questionable accounting practices and report material errors and irregularities than are low-quality auditors. Because high-quality auditors have the expertise, resources, and incentive to separate the information component from noise (Krishnan 2003), they can enhance the informativeness of cash flows from operation and accruals by earnings components. Therefore, this paper expects that firms with high quality audit are more likely to experience a lower cost of debt and report a high quality of earnings components. We focus on non-listed companies to test a relative information of earnings components on cost of debt. Given a negative relationship between earnings and cost of debt (Pittman and Fortin 2004; Fortin and Pittman 2007; Jiang 2008), this paper test whether a cash flows from operations and total accruals have a negative relationship with cost of debt or not. Also, consistent with prior research (e.g., Khurana and Raman 2004; Pittman and Fortin 2004; Fortin and Pittman 2007), the enhanced assurance on financial statements provided by Big 4 auditors tends to leads a tangible benefit for the client in the form of a lower cost of debt. In other words, to the extent that debt investors perceive the Big 4 auditors as providing a higher quality audit and more accurate and credible financial statement, firms audited by the Big 4 auditors (relative to those audited by other auditors) are expected, ceteris paribus, to have a lower cost of debt. We utilize the auditee-specific cost of debt as a proxy for financial reporting credibility. Most studies related to the effect of audit quality on cost of equity focus on listed companies and test a relationship between earnings attributes and cost of equity, and audit quality. However, a portion of non-listed companies has increased over time and earnings characteristics of non-listed companies are different. Given the importance of non-listed companies in economic market, it is somewhat surprising that there is a little study that investigate a relationship between earnings components and cost of debt using non-listed companies. This study try to fill the gap. First, this paper tests a hypothesis that firms received auditing from Big 4 auditors are more likely to experience a lower cost of debt. In addition, this paper separately examines the effect of earnings components and cost of debt: cash flows from operations and total accruals. To do this, this paper examines a relationship between earnings components and cost of debt depending on audit quality using a sample of 35,579 firm-year in non-listed companies from 2005 to 2009. Our sample is non-listed companies which are not listed in security market. Therefore, cost of debt rather than cost of equity is a more important factor in funding from debt-holders. We measure cost of debt as yield spread (CODYS), and use both continuous variable and fractional ranks variable of CODYS. For audit quality measurement, we use a dummy variable as one if a firm received the audit from Big 4 auditors, otherwise zero. Findings of this paper are following. First, this paper finds a negative relationship between a cash flows from operations and cost of debt, and total accruals and cost of debt. This paper also finds that firms audited from Big 4 auditors are more likely to experience a lower cost of debt after controlling for other variables that affect the level of cost of debt. That is, firms are evaluated favorably from debt-holders when they are audited by Big 4 auditors even though they have to pay more audit fees. Second, a negative relationship between earnings components and cost of debt is stronger in firms with Big 4 auditors. This result implies that when a firm receives the audit from Big 4 auditors, debt-holders in debt market perceive it as a good signal in evaluating a quality of financial reporting, and then lead to a lower cost of debt. These results are still hold even after appling a fractional ranks variable rather than a continuous variable as a dependent variable. And also t-statistics from Clustering test and Newey and West (1987) are significant, suggesting that our results are robust. In sum, the results of this paper indicate that a differential audit demand still exists in non-listed companies, and a audit quality significantly influences a negative relationship between earnings components and cost of debt. Based on these results, we can better understand about the decision on auditor selection of non-listed companies and the role of audit service in debt market. The findings in this study have various implications. The results of this paper suggest that the relationship between earnings components and cost of debt varies depending on audit quality. This result implies that investor in debt market perceives the firm audited from Big 4 auditor more favorable. And non-listed companies audited from Big 4 auditor is rewards as a lower cost of debt from debt-holders which means that debt-holders evaluate firms based on earnings quality and audit quality as well. This finding is consistent with Big auditors enhancing the accurate and credibility of reported cash flows from operations and accruals by minimizing noise in reported earnings and thereby improving the informative value of earnings components. Therefore, these findings of this paper are very useful and provide a lot of important implications to regulators, investors and creditors that are interested in cost of debt. Academics can also apply the discussion in this paper for related researches.