Debt Structure and Going-Concern Opinions

• In Event: Financial Accounting and Reporting 3

Abstract

Recent research show that firms borrow different types of debts to construct their debt structure. In this paper, we initially examine whether clients’ debt structure information affects auditors’ going-concern (GC) decision. We find that compared with other debts, the borrowings of bank debts or secured debts decreases the likelihood of an auditor issuing a GC opinion. In addition, we investigate the impact of a GC opinion on debt financing. We find that the presence of a GC opinion increases subsequent borrowings of bank debts or secured debts. Our findings document the usage of debt structure information in the GC decision and show that the issuance of a GC opinion provides incremental value to creditors.

Authors

• Yinghong Zhang, University of Central Oklahoma

• Fang Sun, Queens College