Audit profession development and bank loan contracting

Wenxia Ge, Tony Kang, Byron Y. Song, Gaoguang Zhou

Research output: Contribution to journalArticlepeer-review


This study examines the relation between country-level audit profession development (APD) and bank loan contracting around the world. Using a sample of bank loan data from 35 countries, we find that stronger APD is associated with more favorable loan terms, such as lower loan spreads, fewer covenants, and larger loan amounts. These effects are stronger in countries with a weaker rule of law. We also find that stronger APD attracts significantly more lenders participating in loans and more foreign lenders leading loans. A breakdown of APD into three subcategories, namely, auditor education, auditor independence and liability, and auditor oversight, reveals that all three influence various contracting terms. We also provide evidence that stronger APD is associated with a higher degree of timely loss recognition. Collectively, our findings show that APD improves bank loan contracting terms.

Original languageEnglish
Pages (from-to)85-105
Number of pages21
Issue number2
Publication statusPublished - 8 Dec 2020

Scopus Subject Areas

  • Accounting
  • Finance
  • Economics and Econometrics

User-Defined Keywords

  • Audit profession development
  • Bank loan contracting
  • Foreign lenders
  • Information risk
  • Loan syndicate


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