A Study On The Impact Of Disclosure Of Key Audit Matters On The Cost Of Debt Financing

The main channels for creditors to obtain corporate information are financial reports and audit reports,so it is important to improve the quality of information disclosure in audit reports to promote the reasonable pricing of credit facilities.In December 2016,the Ministry of Finance of China promulgated "China CPA Auditing Standard No.1504-Communicating Critical in the Audit Report Audit Matters",which will be applied to all A-share listed companies from 2018.The disclosure of key audit matters provides more additional information and is theoretically more conducive to creditors’ decision making.Meanwhile,the diversification of institutional investors has promoted the quality of corporate governance,which will also affect creditors’ credit pricing.Therefore,this paper is necessary to study the impact of key audit matter disclosure on debt financing cost based on the moderating effect of institutional investors’ shareholding.Therefore,it is necessary to study the impact of key audit matter disclosure on debt financing cost based on the moderating effect of institutional investors’ shareholding.This paper first analyzes the characteristics of key audit matter disclosures in terms of disclosure structure,matter type,industry characteristics,firm characteristics,audit opinion type and stability.Secondly,combining signaling theory,information asymmetry theory,principal-agent theory and audit demand insurance hypothesis,based on the summary and analysis of existing studies,the disclosure of key audit matters is divided into the dimensions of disclosure quantity,disclosure length,matter type and audit input,and the relationship between different disclosure characteristics of key audit matters and debt financing cost and the moderating effect of institutional investors’ shareholding is mechanistically analyzed.Then,taking the A-share listed companies that disclosed the key audit matters from 2017 to 2019 as the research object,7467 observations are selected according to the established standards,and the relationship between variables is empirically analyzed and tested by linear regression.And finally,further research is conducted by distinguishing companies with different firm audits and different internal control quality.The results show that:(1)the number of key audit matters disclosed,the length of disclosure,audit input and disclosure of asset impairment-type matters arc significantly and positively related to the cost of debt financing,while the dis closure of revenue recognition-type matters are significantly and negatively related to the cost of debt financing,That is,when the disclosure of key audit matters is higher and asset impairment matters are disclosed,it will convey more incremental risk information to creditors and enhance their risk perceptions,and then creditors will increase the required risk premiums.As the source of enterprise profits,revenue recognition events,when disclosed,improve the accuracy of creditors’ assessment of profitability,enhance investment confidence,and reduce credit pricing;(2)The shareholding of institutional investors is significantly negatively correlated with the cost of corporate debt financing;(3)Institutional investors’ shareholding ploys a negative role in regulating the number and length of disclosure of key audit matters,the disclosure of asset impairment matters and the relationship between audit investment and debt financing cost,and plays a positive role in regulating the relationship between the disclosure of income recognition matters and debt financing cost.It indicates that institutional investors,as important external governance subjects,they can induce enterprises to improve the quality of internal control and information disclosure through their participation in management and provide sufficient protection for creditors’ capital security,which in turn affects the relationship between disclosure of key audit matters and debt financing costs;(4)the moderating effect of institutional investors’ shareholding on the relationship between different disclosure characteristics of key audit matters and debt financing costs is more significant among firms audited by non-top 10 firms and those with lower quality internal control.Finally,based on the empirical findings,this paper proposes countermcasures from the perspectives of auditors,audited entities,creditors,institutional investors and market regulators,respectively,in order to provide theoretical references for better implementation of auditing standards and reduction of corporate debt financing costs.