Auditors’ Reputational Damage and Audit Clients’ Cost of Debt: Evidence from Litigation Against Auditors
研究发现，当借款企业的审计师因审计失败被起诉时，银行会要求更高的贷款利率，且这种声誉效应持续两年，表明审计师声誉在私人债务市场中也很重要。
SUMMARY This study examines how auditors’ reputational damage resulting from litigation affects banks’ assessment of audit clients’ creditworthiness. Focusing on a sample of syndicated loans, we find that banks require higher loan spreads when borrowers’ auditors are sued for alleged audit failures. Further analysis reveals that the results are more pronounced when participating banks perceive greater information asymmetry between themselves and either borrowers or lead banks. These reputational effects last for up to two years following litigation and are incremental to other proxies for the quality of audit outcomes. Collectively, our findings underscore the importance of auditor reputation even in the private debt market, where banks have access to private information about their borrowers. This study contributes to a comprehensive understanding of the costs and externalities of auditor litigation in capital markets. Data Availability: All data are publicly available from the sources identified in the paper. JEL Classifications: M41; M42.