Audit Quality,Political Connection And Bank Debt Contract

In the corporate debt financing,the bank loan is a key factor in the debt market.Most enterprises choose bank loans for financing when they raise their debts.Therefore,bank loans have a great impact on corporate financing decisions and corporate value management.When they find debt financings,companies are eager to obtain lower-cost loans,larger-scale loans and longer-term loans.Also the companies want to reduce the pressure on repayments while getting financing.At present,in our debt market,bank loans belong to the seller’s market dominated by the banks.When banks determine to lend money to companies,they give special attention to the financial statements and off-balance sheet information of the enterprises,attach great importance to the authenticity of the enterprise’s financial information,reliability and future development ability.Auditing,as a fair and independent third party,has the function of identifying and verifying the financial information of the enterprise.The quality of the audit can determine the authenticity and reliability of the financial information of the enterprise to a certain extent.Meanwhile,the market for the social contract in China is not complete effectively,the political relationship as an enterprise "relationship" system can provide enterprises with implicit guarantees,will also significantly affect the bank’s credit decisions,and the impact of this relationship system may replace the audit in the effect of the debt contract,so the impact of the audit quality on the debt contract will be more obvious in companies that do not have the political connection.Therefore,this paper intends to study the impact of the audit quality and the political connection on the bank debt contract.Based on asymmetric information theory and insurance theory,this paper analyzes whether audit quality is useful in decision-making in the debt market.At the same time,it discusses the role of political relevance in the context of incomplete contract theory and rent-seeking theory.The main research questions have the following two points:(1)What is the effect of high-quality auditing on the debt market?Will creditors consider companies audited by firms with higher audit quality more reliable in their financial information,thereby reducing debt pricing or reducing the constraints on debt covenants?(2)Whether political connection,as an informal system,can replace audit quality in the debt contract market?What is the impact of auditing quality in the debt contract in the face of companies with different political connections?The result confirms the usefulness of audit quality on debt contract decision-making,high-quality audit can reduce the cost of debt financing,expand the scale of debt financing and increase the proportion of long-term loans,and there is an alternative relationship between the audit quality and the political connection,in politically connected companies,the impact of audit quality on debt covenants will be reduced.