Abstract

This study examines the effects of going-concern opinion on credit rating and cost of debt using a sample of KOSPI and KOSDAQ listed firms in 2000-2012. Prior researches have reported that when firms had going-concern opinion, they have disadvantages in capital market because going-concern opinions indirectly meant that the firm is in financial distress. In this paper, we investigate whether going-concern opinion has impacts on bond market with credit rating and cost of debt. For the purpose of this research, we collected going-concern opinions in audit reports from 2000 to 2012, and set them test sample. Then we used ordered probit model(for credit rating) and OLS regression model(for cost of debt) to examine the effects of going-concern opinion. The results of this study as follows: Going-concern opinion has significant effects on credit rating and cost of debt when other factors were controlled. In level variable test, if firm has going-concern opinion, there are lower credit ratings and higher cost of debt. In change variable test, however, going-concern opinion has insignificant effects on credit rating but it has significant effects on cost of debt. We also conducted matching sample test within same year and same industries, and its results are consistent with full-sample test’s. It means that the results of this studies are robust to sample size. This study is differentiated from prior researches by empirically analyze whether auditors’ judgement is useful in bond market.

Keywords

• going-concern opinion
• credit rating
• cost of debt

Related Articles

• Firm Risk in Audit Report and Tax Avoidance：Focusing on the Role of Financial Analysts

  Jung Nam Chul

  24(2) 117-153

  Abstract Full Text for PDF

• The Effect of Smoothing of GAAP Effective Tax Rates on Credit Ratings and the Cost of Debt

  shinsangyi , Jong-Il Park

  21(5) 9-57

  Abstract Full Text for PDF

• The Effect of Tax Risk and Tax Avoidance on Credit Rating and Cost of Debt

  Jong-Il Park , Su－In Kim

  20(2) 163-204

  Abstract Full Text for PDF

• The Effect of Accruals Quality on Credit Rating and Cost of Debt －Focus on the Innate and Discretionary of Accruals Quality－

  Jong-Il Park

  19(4) 9-48

  Abstract Full Text for PDF

• The Effect of Accounting Conservatism on Credit Ratings and Cost of Debts29) －Empirical Evidence for Listed Firms and Non－listed Firms－

  Sangmin Jung

  18(6) 9-51

  Abstract Full Text for PDF