Iranian Journal of Accounting, Auditing and Finance

Iranian Journal of Accounting, Auditing and Finance

Investigation of the Relationship Between Debt Structure, Credit Rating, and Audit Fees in Companies

Document Type : Original Article

Author
Mahdi Khorramabadi
Department of Accounting, Payame Noor University, Tehran, Iran.
10.22067/ijaaf.2026.47410.1570
Abstract
The present study examined the relationships between short-term debt structure, auditor credit ratings, and audit fees in companies listed on the Tehran Stock Exchange (TSE) between 2013 and 2023. An analysis of the relationships among debt maturity, credit quality, and audit pricing was conducted using data from 136 non-financial firms and panel data regression results. Five hypotheses were tested to examine the direct relationship between short-term debt and audit fees, with the moderating effects of auditor rating, firm size, corporate life cycle stage, and financial reporting quality. Audit fees were significantly correlated with short-term debt, indicating that auditors exert greater effort and increase their compensation in response to greater liquidity risk. However, this was moderated by the auditor's credit rating: higher ratings are associated with lower overall audit costs, while high short-term debt increases audit fees, suggesting greater audit caution under complex financial conditions. Moreover, this joint effect is more prominent in larger firms, early-stage companies, declining companies, and companies with delayed financial reporting, highlighting how context influences audit pricing. This research contributed novel insights to the audit literature, especially within the context of emerging capital markets by integrating multi-level interaction effects and applying robust econometric models. The findings emphasized the strategic importance of financial structure management, timely reporting, and auditor selection in controlling audit-related costs for managers, auditors, and regulators. We encourage future studies to replicate this model using more granular governance and audit-quality proxies in other institutional settings.
Keywords
Audit fees
Credit Rating
Short-term Debt
financial Reporting quality
Emerging Markets
Subjects
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  28. Arhinful, R., Mensah, L., Amin, H. I. M., & Obeng, H. A. (2024). The influence of cost of debt, cost of equity and weighted average cost of capital on dividend policy decision: Evidence from non-financial companies listed on the Frankfurt Stock Exchange. Future Business Journal, 10(1), 99.
  29. Basu, R., Naughton, J. P., & Wang, C. (2022). The regulatory role of credit ratings and voluntary disclosure. The Accounting Review, 97(2), 25-50.
  30. Bortolon, P. M., Sarlo Neto, A., & Santos, T. B. (2013). Audit costs and corporate governance. Revista Contabilidade & Finanças, 24, 27-36.
  31. Chen, Y.-J., & Chen, Y.-M. (2022). Forecasting corporate credit ratings using big data from social media. Expert Systems with Applications, 207, 118042.
  32. Chen, Y., Saffar, W., & Srinidhi, B. (2018). Does Audit Quality Affect Firms’ Debt Structure? Available at SSRN 3047517.
  33. Chong, B. U., Hwang, I. D., & Kim, Y. S. (2015). Credit Ratings and Short‐term Debt Financing: An Empirical Analysis of Listed Firms in Korea. Asia‐Pacific Journal of Financial Studies, 44(1), 88-128.
  34. Dhaliwal, D. S., Gleason, C. A., Heitzman, S., & Melendrez, K. D. (2008). Auditor fees and cost of debt. Journal of accounting, auditing & finance, 23(1), 1-22.
  35. Diamond, D. W. (1991). Debt maturity structure and liquidity risk. the Quarterly Journal of economics, 106(3), 709-737.
  36. Elswah, T., Abozaid, E., & Diab, A. (2024). Does financial reporting quality matter for the auditee characteristics-audit fees relationship? Evidence from an emerging market. Journal of Financial Reporting and Accounting.
  37. Griffin, P. A., Lont, D. H., & Sun, Y. (2008). Corporate governance and audit fees: Evidence of countervailing relations. Journal of Contemporary Accounting & Economics, 4(1), 18-49.
  38. Gul, F. A., & Goodwin, J. (2010). Short-term debt maturity structures, credit ratings, and the pricing of audit services. The Accounting Review, 85(3), 877-909.
  39. Hong, Y., & ZHANG, R. N. (2020). The effect of maturity mismatch between investing and financing on audit pricing. The Journal of Asian Finance, Economics and Business, 7(9), 51-61.
  40. JANUARTI, I., DARSONO, D., & CHARIRI, A. (2020). The relationship between audit committee effectiveness and audit fees: Insights from Indonesia. The Journal of Asian Finance, Economics and Business, 7(7), 179-185.
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  42. L Gandía, J., & Huguet, D. (2020). Audit fees and cost of debt: differences in the credibility of voluntary and mandatory audits. Economic research-Ekonomska istraživanja, 33(1), 3071-3092.
  43. Li, X., & Liu, M. (2024). Abnormal audit fees and financial reporting quality: A meta-analysis. Journal of International Accounting, Auditing and Taxation, 55, 100622.
  44. Lim, H. J., & Mali, D. (2021). Do credit ratings influence the demand/supply of audit effort? Journal of Applied Accounting Research, 22(1), 72-92.
  45. Mili, M., & Alaali, Y. (2023). Does corporate governance quality improve credit ratings of financial institutions? Evidence from ownership and board structure. Corporate Governance: The International Journal of Business in Society, 23(4), 867-887.
  46. Moalla, H., & Baili, R. (2019). Credit ratings and audit opinion: evidence from Tunisia. Journal of Accounting in Emerging Economies, 9(1), 103-125
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  48. Opare, S., & Bhuiyan, M. B. U. (2023). Debt maturity structure, credit ratings and audit fees: new evidence. Accounting Research Journal, 36(6), 558-580.
  49. Xu, Y., Hao, R., Gu, Q., & Wang, K. (2022). The coverage of investor-paid rating agency and audit pricing. Emerging Markets Finance and Trade, 58(12), 3454-3472.
  50. Yuan, D., Yang, X., Qin, R., & Yu, J. (2025). Financial report readability and audit fees: Evidence from China. International Journal of Auditing, 29(1), 207-228.
  51. Zaman, M., Hudaib, M., & Haniffa, R. (2011). Corporate governance quality, audit fees and non‐audit services fees. Journal of Business Finance & Accounting, 38(1‐2), 165-197.
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