Client-Auditor Mismatch,Firm Accounting Information Quality And Firm Debt Financing

Independent audit is widely regarded as the key link to ensure the authenticity,reliability and integrity of financial information,and plays an important role in ensuring the quality of accounting information of enterprises.However,in recent years,the financial fraud scandals of listed companies occur frequently,and the effectiveness of independent audit in practice is constantly questioned.As a commodity,the supply and demand of the buyers and sellers of audit service will directly affect the operation of the audit market.China’s Company Law requires that the annual reports of listed companies must be audited before they can be effective.Therefore,it is of great value to examine whether the auditors selected by enterprises can effectively guarantee the quality of accounting information and its economic consequences.The impact of audit services on enterprises is based on the characteristics of both auditors and enterprises.When the comprehensive ability of auditors can provide the audit services required by the scale and business level of the client enterprise,this paper defines it as a matching client-auditor relationship.As the audit market is a dynamically developing competitive market,enterprises and auditors will adjust their own needs based on their own conditions,resulting in the fact that the services provided by auditors may not be suitable for the needs of clients,and clients and auditors show a mismatch phenomenon.Client-auditor upward mismatch occurs when a more competent auditor undertakes the business of a small client company that should be undertaken by a less competent auditor.Client-auditor downward mismatch occurs when a less competent auditor undertakes the business of a large client company that should be undertaken by a more competent auditor.The current research on client-auditor mismatch mainly focuses on the firm level,and its essence is to examine the impact of the mismatch between the auditor’s firm and the enterprise.Then,can the impact of heterogeneity be reflected in the client-auditor mismatch relationship? Based on the logic of "clientauditor mismatch-accounting information quality-debt financing constraints",this paper investigates whether client-auditor mismatch affects accounting information quality,debt financing cost and bank borrowing capacity.The conclusions of this paper are as follows:(1)The upward client-auditor mismatch improves the quality of accounting information,while the downward mismatch weakens the quality of accounting information.Among them,the quality of accounting information is examined from three dimensions.The empirical research finds that the upward mismatch relationship reduces the level of earnings management,enhances accounting conservatism and reduces the probability of future financial restatement;Downward mismatch strengthens earnings management,weakens accounting conservatism and increases the probability of future financial restatement.When the level of analyst following is higher,higher external supervision leads to higher auditor independence,and the positive correlation between upward mismatch and accounting information quality is stronger;The negative relationship between the downward mismatch relationship and the quality of accounting information is weaker.When the quality of internal control is high,the requirements for the auditor’s business ability are lower,the negative correlation between the downward mismatch relationship and the quality of accounting information is weakened,and the positive correlation between the upward mismatch relationship and the quality of accounting information is not affected.(2)The upward client-auditor mismatch relationship reduces the cost of debt financing in the second year,while the downward mismatch relationship increases the cost of debt financing in the second year.Further studies show that when analysts’ attention is higher,the negative correlation between the upward mismatch and the cost of debt financing is enhanced,and the positive correlation between the downward mismatch and the cost of debt financing is enhanced.Compared with large enterprises,small and medium-sized enterprises face more serious financing constraints,and the upward mismatch has a greater impact on the cost of debt financing of small and medium-sized enterprises;Compared with small and medium-sized enterprises,downward mismatch has a more prominent impact on the debt financing cost of large enterprises.The client-auditor upward mismatch can alleviate the situation of "expensive financing" for small and medium-sized enterprises.In addition,both client-auditor upward mismatch and downward mismatch can affect the cost of debt financing by affecting the quality of accounting information.(3)The upward client-auditor mismatch relationship increases the firm’s bank borrowing ability in the second year,while the downward mismatch relationship weakens the firm’s bank borrowing ability in the second year.When the analyst attention is higher,the positive correlation between the upward mismatch relationship and the corporate bank borrowing ability is weaker;The downward mismatch relationship has a stronger negative relationship on the bank borrowing capacity of firms.When the quality of corporate internal control is better,the impact of upward mismatch relationship and downward mismatch relationship on corporate bank borrowing ability is weaker.Compared with large enterprises,small and medium-sized enterprises face more serious financing constraints,and the upward mismatch has a greater impact on increasing the bank borrowing capacity of small and medium-sized enterprises;Compared with small and medium-sized enterprises,the negative correlation between downward mismatch and the bank borrowing capacity of large enterprises is more obvious.In addition,both client-auditor mismatch and client-auditor mismatch can affect corporate bank lending ability by affecting the quality of accounting information.The innovations and contributions of this study are as follows: 1)This paper expands the relevant research on client-auditor employment relationship.(2)This paper supplements the relevant research on the individual effect of auditors.3)This paper enriches the relevant research on the impact of independent audit on corporate debt financing and bank credit decisions.