Research On The Impact Of Audit Quality And Internal Control Level On Corporate Bond Spreads

The corporate bond spread is the part that is higher than the risk-free rate.As the basis of corporate bond pricing,the spread is regarded as compensation for investors.External audit and internal control are important governance mechanisms.Audit is independent and objective.High-quality audit can improve the authenticity and reliability of financial disclosure and send positive signals to the market.Internal control can help enterprises operate legally,improve accounting quality and achieve the strategic objectives.Both of them can effectively alleviate the information asymmetry between issuers and investors.Therefore,this paper focuses on the impact of audit quality and internal control on corporate bond spreads.And further analyzes whether they are substitutional or complementary in reducing corporate bond spreads.Firstly,this paper reviews relevant literature on audit quality,internal control and bond pricing.Then we make theoretical analysis and propose the research hypotheses.In the empirical part,this paper bases on A-share listed companies of China from 2007 to 2018 to analyze the governance role of audit quality and internal control level on corporate bond spreads.We find that:(1)Audit quality is significantly negative correlated with the corporate bond spreads.(2)Internal control level is significantly negative correlated with the corporate bond spreads.(3)There is an alternative relationship between audit quality and internal control level in reducing the corporate bond spreads.And this relationship is more obvious in the non-state-owned enterprises.