Independent Audit and Bond Covenants——Research on Corporate Bonds in China

Abstract

Based on the bond data of corporate bonds in China, this paper examines the impact of independent audit on the design of bond contract protection terms. Using the audit quality of the accounting firm in the year of issuing bonds and the audit opinion of the previous year, the empirical study finds that high quality audit is positively related to the number of bond contract terms, while the standard unqualified audit opinion of the previous year is negatively related to it; moreover, the impact of high quality audit on bond issuance is more significant than that of audit opinion of the previous year .Further research shows that the above effects are more significant in state-owned enterprises and enterprises with high bond credit rating. This study provides a theoretical reference for independent audit to play the role of bond default governance in bond issuance.