Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/20970
Title: The cost of debt when all-equity firms raise finance : the role of investment opportunities, audit quality and debt maturity
Authors: Lai, KW 
Keywords: Interest expense
Investment opportunities
Big 4 auditors
Short-term debt
Issue Date: 2011
Publisher: Elsevier
Source: Journal of banking and finance, 2011, v. 35, no. 8, p. 1931-1940 How to cite?
Journal: Journal of banking and finance 
Abstract: This paper investigates the effect of investment opportunities, audit quality and debt maturity on the interest paid by all-equity firms. Debt holders are likely to charge higher interest to price-protect themselves because of the under-investment and asset substitution problems. All-equity firms, however, could reduce interest charge by employing Big 4 auditors to increase the reliability of audited financial statements or using short-term debt to allow more frequent monitoring of their financial condition by lenders and re-pricing of debt. The results show that interest charge is positively related to investment opportunities of all-equity firms. This relationship is weaker when the firms have Big 4 auditors or a higher proportion of debt due in the next year over total debt. In addition, the above results do not hold for highly levered firms since the lenders are constantly monitoring the financial condition of their borrowers.
URI: http://hdl.handle.net/10397/20970
ISSN: 0378-4266
EISSN: 1872-6372
DOI: 10.1016/j.jbankfin.2011.01.007
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