Cost of debt for private firms revisited : voluntary audits as a reflection of risk

Ichev, Riste (author), Koren, Jernej (author), Kosi, Urška (author), Sitar Šuštar, Katarina (author), Valentinčič, Aljoša (author)

We examine the relation between voluntary audit and the cost of debt in private firms. We use a sample of 7,420 small private firms operating in the period 2006-2022 that are not subject to mandatory audits. Firms self-select into voluntary audits because of the economic setting (e.g., ownership complexity, export, subsidiary status) or because firm fundamentals limit their access to financial debt. In the outcome analyses, we find that voluntary audits result in higher, rather than lower, interest rates with increases ranging from approximately 1.7 percentage points, but going higher depending on the exact specification. This effect is present regardless of the perceived audit quality (Big-4 vs. non-Big-4), consistent across auditor types. Audited firms’ earnings are less informative about future operating performance. Voluntary audits facilitate access to financial debt for high-risk firms. The price paid is reflected in higher interest rates for voluntary audits – firms with higher information/fundamental risk.

• Language: English
• Keywords: private company, internal auditing, indebtedness, risk, risk management, private firms, voluntary audit, cost of debt, self-selection bias
• Work type: Article
• Typology: 1.01 - Original Scientific Article
• Organization: EF - School of Economics and Business
• Publication status: Published
• Publication version: Version of Record
• Year: 2026
• Number of pages: 24 str.
• Numbering: Vol. 109, article no. ǂ105474
• PID: 20.500.12556/RUL-184415
• UDC: 005.336.1
• ISSN on article: 1059-0560
• DOI: 10.1016/j.iref.2026.105474
• COBISS.SI-ID: 280069379
• Publication date in RUL: 06.07.2026

Record is a part of a journal

• Title: International review of economics and finance
• Shortened title: Int. rev. econ. finance
• Publisher: Elsevier
• ISSN: 1059-0560
• COBISS.SI-ID: 1019157

Licences

• License: CC BY-NC-ND 4.0, Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International
• Link: http://creativecommons.org/licenses/by-nc-nd/4.0/
• Description: The most restrictive Creative Commons license. This only allows people to download and share the work for no commercial gain and for no other purposes.

Secondary language

• Language: Slovenian
• Keywords: zasebno podjetje, notranja revizija, zadolženost, tveganje, obvladovanje tveganj

Projects

• Funder: ARIS - Slovenian Research and Innovation Agency
• Project number: P5-0161
• Name: Izzivi vlagateljev, podjetij, finančnih institucij in države v negotovem evropskem gospodarskem okolju

• Funder: Other - Other funder or multiple funders
• Project number: 403041268
• Name: TRR 266 Accounting for Transparency