Debt maturity structure, credit ratings and audit fees: new evidence
ISSN: 1030-9616
Article publication date: 13 November 2023
Issue publication date: 27 November 2023
Abstract
Purpose
This research aims to revisit Gul and Goodwin (2010), which focuses on exploring the relationship between debt maturity structure, credit ratings and audit fees. Furthermore, the authors investigate whether this association varies based on firm size, firm life cycle and financial reporting quality.
Design/methodology/approach
To investigate the research question, the authors use an extended sample period, 2004–2017, in comparison to the sample period, 2003–2006, used in Gul and Goodwin (2010). The authors use ordinary least squares regression as a baseline methodology along with two-stage least-squares regression and change analysis to control for endogeneity concerns.
Findings
According to Gul and Goodwin (2010), auditors charge lower audit fees for firms with higher short-maturity debt and better credit ratings, indicating a lower likelihood of financial misreporting. Further, Gul and Goodwin (2010) find that lower credit rated firms benefit more from short-term debt. Primarily, the findings are consistent with Gul and Goodwin (2010) and provide further evidence that the beneficial effects of short-maturity debt for firms with poor ratings are evident for small firms, firms in the growth stage of their life cycle and firms with poor earnings quality.
Practical implications
The findings imply that practitioners in the audit profession and investors should take a more nuanced and comprehensive approach to varied firm and financial factors, taking into consideration the intricate relationships between many elements impacting a firm’s financial health. As a result, audit professionals may give more accurate appraisals of a firm’s financial condition, and investors can make better investment decisions.
Originality/value
The authors reconfirm the findings of Gul and Goodwin (2010) using an extended sample. The findings are novel, which evidence that the lower audit fees for rated firms with short-maturity debt are moderated by firm size, life cycle and financial reporting quality.
Keywords
Acknowledgements
The authors express their gratitude to the Editor, the Associate Editor of the Accounting Research Journal, and the two anonymous reviewers for their valuable comments and suggestions during the review process. They also extend their appreciation to Mabel D’Costa and Ahsan Habib for their constructive feedback on earlier versions of this paper.
Funding statement: This research did not receive any specific grant or funding from any funding agencies in the public, commercial or not-for-profit sectors.
Disclosure statement: No potential conflict of interest was reported by the authors.
Citation
Opare, S. and Bhuiyan, M.B.U. (2023), "Debt maturity structure, credit ratings and audit fees: new evidence", Accounting Research Journal, Vol. 36 No. 6, pp. 558-580. https://doi.org/10.1108/ARJ-10-2022-0261
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited