Audit Quality,Credit Rating And Debt Financing Costs

Since 2007, China issued the first corporate bond. Corporate bond has landed on the Chinese stage as a new way of financing. After eight years of development, China’s corporate bond market becomes more and more mature and stronger. Due to the existence of information asymmetry, the problem of financing difficulties, financing expensive have plagued the enterprise. Existing researches show that the more transparent financial information can reduce the credit risk of creditors, but determine the quality of financial information directly is difficult,they often need the help of other indirect ways. High quality audit means the function of signal transmission, supervision and insurance is stronger, which help to improve the quality of financial information. The purpose of credit rating is to assess the risk of corporate default, the higher the credit rating, investors require the less risk compensation, which can reduce the cost of debt financing. Because the rating agencies are based on the audited financial data, the audit quality will affect the relationship between the credit rating and the cost of bond financing.Existing researches mainly focus on internal factors such as the role of earnings management,financial characteristics and other factors. In view of this, this paper attempts to explore the impact of high quality audit on the relationship between credit rating and bond financing cost from the perspective of external governance mechanism--the function of auditing.This article based on the data of the Shanghai and Shenzhen A-share listed company corporate bonds which are issued in 2007-2014 as the sample, use empirical research methods to test the relationship among audit quality, credit rating and debt financing cost. The study results show that the audit as an external governance mechanism, play an important role on reducing the risk of asymmetric information, high quality of audit can strengthen the negative effect of credit rating and the cost of debt. In addition, the degree of the influence of audit quality is different in the different nature of enterprise, audit quality has a greater effect on the relationship between credit rating and debt financing cost in non-state-owned enterprises.