The Mediating Effect of Audit Delay on the Relationship between Standard Audit Report and Firm’s Access to Finance: Evidence from Egypt

Abstract

Firms are seeking different sources of finance to run their businesses and acquire more assets to grow and expand. To reach these sources of finance, firms try to convey positive messages to outsiders, related to their earnings quality, operations, and sustainability in the future. One of the most important messages might be in the form of high-quality audits. The objective of this research is to study and investigate how firms’ access to finance is affected by standard audit report in Egypt, and whether audit delay (or audit report lag interchangeably) mediates the relationship between standard audit report and firm’s access to finance. To fulfil the research objective and test the research hypotheses, a sample of 246 firm-year observations was selected from non-financial firms listed on the Egyptian Stock Exchange (EGX hereafter) during the period from 2016 to 2019, and regression models were developed. Statistical results indicate that issuing financial statements, accompanied with standard audit report, will reduce capital constraints and lead to greater access to finance. Additionally, empirical evidence revealed that audit report lag mediates the relationship between standard audit report and firms’ access to finance. This research adds empirical evidence to the limited literature of audit quality, information asymmetry and financial constraints in developing countries. It provides valuable insights to financial managers and helps them to understand how capital providers respond to standard audit report content and audit report lag. Finally, this research will help finance seekers to understand the importance of offering timely financial information to access finance.