Religiosity,Auditor's Opinion And Cost Of Debt

In this paper,I examine the association between religiosity and cost of debt conditioned on the auditor's opinion on the financial reports.I expect that firms with their headquarters located in counties with stronger religiosity level in the U.S.are le ss likely to be involved in financial reporting manipulations and irregularities as previous study show that religion is related to lower level of unethical corporate practice.Hence,such firms are more likely to receive an unqualified opinion from their auditors and therefore have lower cost of debt.Using U.S.setting,the results of this study shows that firms headquartered in highly religious counties generally receives unqualified auditors' opinion resulting in lower cost of debt.The results further support that the effect of religiosity on cost of debt is higher for riskier firms.This study also conducts additional test on the impact of religion on financial reporting quality and auditor opinion and found that religion is positive and significantly related to financial reporting quality.The test on religion and audit opinion shows that religion is associated with unqualified audit opinion.The study concludes that religion reduces individuals'involvement in unethical business practices and thus lowers financial reporting manipulation and irregularities.As such the financial reports of firms with headquarter location in highly religious counties are of high quality and more likely to give a true and fair view of the firm's financial position.Hence such firms are likely to receive unqualified opinion resulting in lower cost of debt.