The influence of the Main Bank's selection of an audit firm on the cost of debt of the firm

Abstract

Nowadays, Vietnam's economy is on a remarkable development track, at the time of global economic integration. Foreign investors continuously invest into Vietnam. In fact, investors’ action for the benefit is a common behavior of entrepreneurs in the world, whether businesses do want it or not. One of the benefits of this behavior is to create an invisible effort for the businesses to take their responsibilities seriously and consciously to emphasize their performance ability by disclosing the financial information honestly and reasonably. To achieve this, businesses need supervision as well as information approval from independent auditors. Enterprises are responsible not only for honest disclosure to investors but also to creditors such as commercial banks. The financial statements of a business have an impact on borrowing activities, specifically borrowing costs. This paper examines the influence of the audit selection of the listed company on Ho Chi Minh Stock Exchange (HOSE) and Ha Noi Stock Exchange (HNX) according to the main bank on the cost of debt, with a sample of 336 companies listed on the Vietnamese stock market observed in the period 2017 - 2020. We look into their financial statements for data gathering. Our research model is based on panel data and regressed using three different methods: pooled OLS least squares, FEM fixed effects model, and REM random effects model. The results of the research are to prove the theory that the selection of audits by main banks would benefit their borrowers by lowering the cost of debt of listed companies in Vietnam. The research is trying to investigate the relationship between Auditor choice based on the main bank and the cost of debt of the companies by testing the hypothesis. As a result, there’s a true existence of the affection to the cost of debt whenever the company chooses the same auditor as their main bank. These results are hoped to provide useful information to the borrower company, the banks and other users, any of which can consider choosing the same auditor as the main bank’s; this may be one of the ways to optimize the cost of debt. Consequently, the companies can have a larger bank loan which means that the company gets flexible capital for the company’s operation but with a lower cost. Finally, the study has given some proposals helping enterprises to disclose information honestly and reasonably. Our team suggests some ideas for stakeholders: accounting-audit students, schools as well as the government. Furthermore, this piece of study may update a new perception to the companies which encourages social exchanges such as information exchange to achieve inter-organizational goals.