Auditor size, tenure, and bank loan pricing

Jeong Bon Kim, Byron Y SONG, Judy S.L. Tsui

Research output: Contribution to journalArticlepeer-review

27 Citations (Scopus)


Using a large sample of U. S. bank loan data from 1996 to 2008, we investigate the relation between two auditor characteristics, namely, auditor size and tenure, and loan interest rates. Our results show the following: First, we find that the loan interest rate is significantly lower for borrowers with prestigious Big 4 auditors than for borrowers with non-Big 4 auditors. Second, we find that auditor tenure is negatively associated with the loan interest rate, suggesting that a long client-auditor relationship lowers the loan borrowing cost. Third, we find that the negative association between auditor size and loan rate is more pronounced for transaction-based term loans than for relationship-based revolving loans. Fourth, our sub-period tests show that our results are driven by the post-Sarbanes-Oxley Act period. Our study provides direct evidence that auditor size and tenure are incremental credit risk-reducing factors in the bank loan market.

Original languageEnglish
Pages (from-to)75-99
Number of pages25
JournalReview of Quantitative Finance and Accounting
Issue number1
Publication statusPublished - Jan 2013

Scopus Subject Areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance

User-Defined Keywords

  • Auditor size
  • Auditor tenure
  • Loan pricing
  • Loan rate


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