How Do Director Network And Auditor Quality Affect Cost Of Debt?

This study examines whether the social network of directors enables them to provide their companies with resources in choosing high-quality auditors,resulting in lower financing costs.Specifically,this study explores the role of well-networked directors and high-quality auditors in affecting the cost of debt.Using a sample of S&P1500 firms from 1996 to 2013,I find strong and reliable evidence that the cost of debt for companies with well-networked directors decreases significantly with high-quality auditors.This mitigating effect is more pronounced for companies with strong corporate governance mechanisms,directors equity-based compensation and a common position as CEO-Chairman.My findings highlight the director's network as an important channel of resource transmitting to companies,leading to greater investor confidence.In addition,from the perspective of creditors,this study offers an alternative explanation and complement to the value creation of corporate networks.