The Effect Of Individual Auditor's Experience On The Financing Cost Of Corporate Bond

It has been founded over ten years for China's corporate bond market since the first corporate bond called “07Changdian bond” issued in 2007.The size of corporate bond market is continuing to expand.The total amount of issued corporate bonds is only 11 billion and 200 million yuan in 2007 but increased to 1 trillion and 500 billion yuan in 2016.The development of corporate bond market can widen the financing channels of firms,reduce the dependence of traditional bank credit financing,and increase the investment choices of participants in capital market.As capital providers,bondholders are interested in ensuring the timely repayment of the principal and interests that are claims on the borrower's future cash flow and assets to analyze the risk of default and ask for different risk premiums.For corporate bond issuers,higher cost of debt financing restricts the development of firms.Therefore,auditors play the roles of information supervision and information assurance can mitigate information asymmetry between bond issuers and bond investors.And these will lead to a lower risk premium for bondholders.On the basis of the latest research at home and abroad,theories including Principal-agent Theory,Deep-Pocket Theory,Signaling Theory,Credit Risk Theory,this dissertation starts from China's capital market using the dataset with 728 firm-year observations over the period 2007-2016 and the total signing years of auditors in China's A-share market as individual auditor's experience to investigate whether bond investors care about individual auditor's experience and thus affect the costs of corporate bonds.This study found a significant negative association between individual auditor's experience and the costs of corporate bonds.This association is robust to a series of robustness checks,including controlling for the selection bias by two steps of the Heckman method,applying the change model,adding possible omitted variables,using the weighted average bond yield spread for multiple bond issues in the same year,and alternating the measures of individual auditor's experience.Compared with big10 audit firms,individual auditor's experience in non-big10 audit firms has a stronger influence on costs of corporate bonds.The effect of individual auditor's experience on the costs of corporate bonds is less pronounced for firms listed in multiple capital markets or high level of corporate governance.After differentiating the field auditors and review auditors,there is a stronger effect on costs of corporate bond for field auditors.