Signing auditors' cultural background and debt financing costs

Abstract

This study explores the effect of signing auditors' cultural background on debt financing costs. Using a sample of Chinese listed firms from 2007 to 2019, we find a negative association between signing auditors of Confucian origin and the cost of debt, indicating that signing auditors who grow up in strong Confucian atmospheres increase perceptions of audit quality. Furthermore, empirical results show that signing auditors of Confucian origin enhance accounting information quality. Meanwhile, these signing auditors can obtain high audit fees, attract more clients, and are more likely to be selected by client firms when changing auditors. Additional tests document that signing auditors' gender, education level, and working experience attenuate the negative relationships between signing auditors' Confucian background and debt financing costs. The negative effect of signing auditors' cultural background on debt financing costs is more pronounced in non-state-owned firms and firms with less analyst coverage. This paper extends the literature about the influencing factors of financing costs and provides insights into the economic consequence of culture.