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The effects of industry expertise on cost of debt: an individual auditor-level analysis

Ying-Chieh Wang (Department of Accounting, Ming Chuan University, Taipei City, Taiwan)
Hua Wei Huang (Department of Accountancy, National Cheng Kung University, Tainan, Taiwan)
Jeng-Ren Chiou (Department of Accountancy, National Cheng Kung University, Tainan, Taiwan)
Yu Chieh Huang (National Cheng Kung University, Tainan, Taiwan)

Asian Review of Accounting

ISSN: 1321-7348

Article publication date: 11 September 2017

537

Abstract

Purpose

The purpose of this paper is to examine the association between the cost of debt (COD) and auditor industry expertise using Taiwanese data. Since previous studies (Li et al., 2010) have only examined the relation between industry specialization and COD at the audit firm level in western countries, the authors further examine the association between industry specialization and COD at the individual auditor level in an Asian context.

Design/methodology/approach

The authors use the interest rate on the firm’s debt as a proxy variable for the COD (Francis, Khurana and Pereira, 2005). The authors adopt three different methods to measure industry specialization, which consist of the auditors’ market share in terms of client sales and number of clients, and client assets.

Findings

The results indicate that the clients of industry specialists at individual auditor levels have a lower COD.

Originality/value

First, the authors extend the research of Li et al. (2010) and find that the clients of individual auditor industry specialists also have a lower COD. Second, the authors also believe the evidence on the effects of industry expertise at the individual auditor level may have policy implications for regulators and public investors. Finally, in contrast to works carried out in the US market, the authors provide empirical evidence for the relation between industry specialization and COD in an Asian market.

Keywords

Citation

Wang, Y.-C., Huang, H.W., Chiou, J.-R. and Huang, Y.C. (2017), "The effects of industry expertise on cost of debt: an individual auditor-level analysis", Asian Review of Accounting, Vol. 25 No. 3, pp. 322-334. https://doi.org/10.1108/ARA-08-2014-0092

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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