Research On The Influence Of Corporate Governance And Independent Audit On The Cost Of Debt

The level of debt cost will affect the efficiency of corporate financing, and it isalso one of the most important factors that affect the performance of enterprisesgrowth and long-term development. Although agency problems and informationasymmetry will make the debt cost increases, studies of foreign scholars have shownthat high level of corporate governance and high-quality audit supervision canreduce debt cost. However, there are lots of controversies and doubts about whethercorporate governance mechanisms and auditors play its role effectively. So, whetherthe conclusion of mature capital market is suitable for the domestic capital marketwill need further examinations.This paper first theoretically analyses the mechanism of corporate governanceand independent audit in reducing debt cost, then empirically examines the influenceof them on it and the mutual relationship of them. And reached the followingconclusions: First, raising the level of corporate governance can reduce the cost ofdebt. Second, high quality of audit supervision also can reduce the cost of debt,when the auditor is the "top ten" accounting firms, debt cost will be lower. Third,there exists a substitution effect between corporate governance and independentaudit in affecting debt costs. that is to say, improve the level of corporategovernance to reduce debt cost only established when the company hired the "topten" accounting firms as auditors which means higher audit quality, and does nothold, vice versa. Finally, based on the findings, this paper argues that in order tostrengthen the protection of creditors, we need to improve the institutionalenvironment and audit commission mode to improve audit quality and make thecompany spontaneous strengthen audit supervision, we can also rationalize theownership structure, increase the board independence, ameliorate the executivecompensation incentive system and improve the quality of information disclosureand transparency to improve the level of corporate governance.