The Value of Financial Statement Verification in Debt Financing: Evidence from Private U.S. Firms
Top Cited Papers
- 14 March 2011
- journal article
- Published by Wiley in Journal of Accounting Research
- Vol. 49 (2) , 457-506
- https://doi.org/10.1111/j.1475-679x.2011.00411.x
Abstract
I examine how verification of financial statements influences debt pricing. I use a large proprietary database of privately held U.S. firms, an important business sector in which the information environment is opaque and financial statement audits are not mandated. I find that audited firms have a significantly lower cost of debt and that lenders place more weight on audited financial information in setting the interest rate. Further, I provide evidence of a mechanism for this increased financial statement usefulness: accruals from audited financial statements are better predictors of future cash flows. Collectively, I provide novel evidence that audited financial statements are more informative and that this significantly influences lenders’ decisions.This publication has 54 references indexed in Scilit:
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