Research On The Influence Of Internal Control And External Audit Quality On The Cost Of Debt

When enterprises finance outside,most will choose the way of debt financing,and the cost of debt must be considered.The cost of debt has an important impact on the operation of the enterprise.If debt costs are too high,enterprises may have a heavy burden and operating difficulties.In order to enable enterprises to develop better,exploring ways to reduce the cost of debt is particularly important.Previous studies have shown that agency conflicts and information asymmetry between creditors and firms can lead to an increase in debt costs.Foreign studies have shown effective internal control and high-quality external audit can ease agency conflicts and information asymmetry between creditors and businesses,thereby reducing debt costs.But whether the conclusion applies to China's capital market remains to be tested.In the study,there is little emphasis on the quality of internal control and external audit in the same framework,examining the role of both in terms of debt costs and the interplay of the two roles.This paper first theoretically analyses the mechanism of internal control and external audit in reducing debt cost,then empirically examines the influence of them on it and the mutual relationship of them.And reached the following conclusions:First of all,there is a significantly negative correlation between the level of internal control and the cost of debt,and the increase in the level of internal control can significantly reduce the cost of debt.Secondly,there is a significantly negative correlation between external audit quality and debt costs,and the increase in external audit quality can significantly reduce debt costs.Finally,when the quality of external audit is improved,the effect of internal control to reduce the cost of debt is weakened.When the quality of external audit is reduced,the effect of internal control to reduce the cost of debt is enhanced.There is an alternative relationship between the level of internal control and the quality of external audit on the impact of debt costs.According to the conclusion of the study,this paper argues that if we want to reduce the debt cost of the enterprise and make the enterprise has long-term development,we should establish and improve the effective internal control mechanism and improve the quality of the external audit.This requires the joint efforts of enterprises,accounting firms and relevant regulatory authorities,so that we can effectively protect the interests of creditors and achieve business and investors win-win situation.In view of the limited external audit level,the reform of corporate governance mechanism is particularly important,especially to constantly improve the internal control mechanism,and effectively play the role of internal control to improve corporate governance level and reduce debt costs.