Fair Value Accounting and the Cost of Debt: The Role of Auditor Expertise

dc.contributor.author Magnan, Michel
dc.contributor.author Wang, Haiping
dc.contributor.author Shi, Yaqi
dc.date.accessioned 2021-11-12T18:53:57Z
dc.date.available 2021-11-12T18:53:57Z
dc.date.issued 2021
dc.description.abstract This study examines the association between the use of fair value accounting and the cost of debt, as well as the impact of auditor national-level and city-level industry expertise on this association. Results suggest that more extensive use of fair value accounting measurement in the financial statements is generally associated with a higher cost of debt, primarily driven by Level 2 and Level 3 estimates, which supports the argument that fair value accounting is perceived to exhibit lower reliability. In addition, we find that national-level auditor industry expertise improves the informativeness of Level 1 and Level 3 fair value accounting information to debtholders, whereas city-level auditor industry expertise enhances the information quality of Level 3 fair value estimates to debtholders. Furthermore, we explore the effect of auditor task-specific fair value expertise and find that city-level auditor fair value expertise lowers the cost of debt for firms that use Level 3 fair value measurement. These results hold after correcting for self-selection bias, as well as controlling for the orthogonalized credit ratings and variables associated with firms’ underlying risks.
dc.identifier.uri http://hdl.handle.net/10125/77057
dc.subject Fair Value Accounting
dc.subject Fair Value Hierarchy
dc.subject Cost of Debt
dc.subject Auditor Industry Expertise
dc.subject Auditor Fair Value Expertise
dc.title Fair Value Accounting and the Cost of Debt: The Role of Auditor Expertise
dc.type.dcmi Text
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