Welcome to Francis Academic Press

Academic Journal of Business & Management, 2021, 3(5); doi: 10.25236/AJBM.2021.030514.

Independent Audit and Bond Covenants——Research on Corporate Bonds in China


Yetong Zhu

Corresponding Author:
Yetong Zhu

School of Shanghai University, Shanghai, China


Based on the bond data of corporate bonds in China, this paper examines the impact of independent audit on the design of bond contract protection terms. Using the audit quality of the accounting firm in the year of issuing bonds and the audit opinion of the previous year, the empirical study finds that high quality audit is positively related to the number of bond contract terms, while the standard unqualified audit opinion of the previous year is negatively related to it; moreover, the impact of high quality audit on bond issuance is more significant than that of audit opinion of the previous year .Further research shows that the above effects are more significant in state-owned enterprises and enterprises with high bond credit rating. This study provides a theoretical reference for independent audit to play the role of bond default governance in bond issuance. 


Bond covenants, Independent Audit, Audit Quality, Audit Opinion

Cite This Paper

Yetong Zhu. Independent Audit and Bond Covenants——Research on Corporate Bonds in China. Academic Journal of Business & Management (2021) Vol. 3, Issue 5: 78-90. https://doi.org/10.25236/AJBM.2021.030514.


[1] Reisel, N. On the Value of Restrictive Covenants: An Empirical Investigation of Public Bond Issues. 2010

[2] Black Fischer, John C Cox. Valuing corporate securities: some effects of bond indenture provisions. [J] Journal of Finance.1976

[3] Joy Begley, Gerald A. Feltham. An empirical examination of the relation between debt covenantss and management incentives [J]. Journal of Accounting and Economics. 1999 (2)

[4] Ball Ray, Brown Philip. An Empirical Evaluation of Income Numbers, 1968

[5] Sanjiv R. Das, Seoyoung Kim. Credit Spreads with Dynamic Debt [J]. Journal of Banking and Finance. 2014 

[6] Intan Suryani Abu Bakar, Arifur Khan, Paul Mather, George Tanewski. Board monitoring and covenant restrictiveness in private debt covenantss during the global financial crisis [J]. Accounting& Finance, 2020, 60.

[7] Justin Lallemand. Bank lending to targets of active takeover attempts: The simultaneous choice of loan maturity, pricing, and security [J]. Review of Financial Economics, 2020, 38 (2).

[8] Sunay Mutlu. Accounting quality and the choice of borrowing base restrictions in debt covenants [J]. Accounting and Business Research, 2020, 50(2).

[9] Pan Jun, Yuan Lu, Wang Yu. Does the risk of stock price crash affect the design of bond contract terms? [J]. Financial review, 2019, 11(05): 67-79+117.

[10] Evrim Akdoğu, Aysun Alp Paukowits, Ugur Celikyurt. The relationship of G-Index and convertible debt issuance in the presence of restrictive covenants [J]. International Review of Economics and Finance, 2020, 70.

[11] Sudheer Chava, Shunlan Fang, Praveen Kumar, Saumya Prabhat. Debt Covenants and Corporate Governance [J]. Annual Review of Financial Economics, 2019, 11.

[12] Wang Xuguo, Shen Hongbo, Zhong Linjia. Government implicit guarantee, bond default and interest margin of credit debt of state owned enterprises [J]. Finance and trade economy, 2019, 40 (12): 65-78

[13] Zhen Hongxian, Wang SANFA, Wang Xiaohong. Special terms of corporate bonds, bond rating and accounting conservatism [J]. Accounting research, 2019 (10): 42-49

[14] Lu Huaili, Yang Conghui. The influence of collusion between underwriters and auditors on bond issuance pricing -- Based on personal empirical data [J]. Audit research, 2019 (03): 111-119

[15] Yang Guochao, pan Yuzhang. Is trust priced? -- Evidence from bond market [J]. Financial research, 2019 (01): 35-53

[16] Chen Yiyun, Lin Wanfa. Reputation of market intermediaries and bond contract design [J]. Finance and accounting monthly, 2018 (20): 161-168

[17] Li Zhuosong. Research on corporate risk taking and bond contract [D]. Central University of Finance and economics, 2018

[18] Feng Guo, Yan Weibo. On the restrictive clauses of bonds and the protection of bondholders' interests [J]. Modern law, 2017, 39 (04): 40-53

[19] Huang Xiaolin, Zhu song, Chen Guanting. The impact of bond default on credit rating agencies involved: an analysis based on default events in China's credit bond market [J]. Financial research, 2017 (03): 130-144

[20] Wei Minghai, Lai Jing, Zhang Hao. Implicit guarantee, financial intermediary governance and information efficiency of corporate bond market [J]. Nankai management review, 2017,20 (01): 30-42

[21] Li Yan, Zhang Limin, Xing Chunyu. Institutional investors, going concern audit opinions and financing constraints: evidence from non-state-owned enterprises [J]. Journal of Central South University of economics and law, 2016 (06): 58-67 + 160

[22] Wang Bosen, LV Yuanzhen, ye Yongxin. Pricing of government implicit guarantee risk: a discussion based on China's bond trading market [J]. Economic research, 2016,51 (10): 155-167

[23] Shi Yongdong, Tian Yuanbo. Do contract terms affect bond prices? -- An Empirical Study Based on China's corporate bond market [J]. Financial research, 2016 (08): 143-158

[24] Zhou kaitang, Ma Zhiming, Wu Liansheng. Does going concern audit opinion have additional value? -- Evidence from debt financing [J]. Accounting research, 2016 (08): 81-88 + 97

[25] Tian Yuanbo. Bond contract terms and corporate bond pricing [D]. Northeast University of Finance and economics, 2016

[26] Li Mochou, Zhou Hong, Xia Lijun. Does risk oriented auditing standards improve the risk sensitivity of certified public accountants? [J]. Financial research, 2015,41 (09): 96-107

[27] Leng Aolin, Zhang Junrui, Xing Guangyuan. Research on the transmission mechanism and impact effect of corporate external guarantee default risk -- An Empirical Analysis Based on bond spread data of Listed Companies [J]. Management review, 2015,27 (07): 3-14

[28] Wang Fang, Zhou Hong. Guarantee effect and independent audit demand: a study based on China's bond market [J]. Accounting research, 2015 (07): 71-78 + 97

[29] Tan Hongtao, Zhang Xiao. Is non-standard audit opinion sufficient to protect auditors? -- evidence based on securities law enforcement [J]. Audit research, 2015 (03): 91-99

[30] Han Pengfei, Hu Yiming. Can government implicit guarantee reduce the financing cost of bonds? -- An Empirical Study on bonds of state-owned enterprises and local financing platforms [J]. Financial research, 2015 (03): 116-130

[31] Zhang Junrui, Liu Hui, Yang Bei. Impact of pending litigation on audit fees and audit opinion types [J]. Audit research, 2015 (01): 67-74

[32] Li Wei. The impact of accounting conservatism on audit fees and audit opinions in an uncertain environment [J]. Audit research, 2015 (01): 91-98

[33] Liu EP, Shi Yanping. Earnings management, corporate bond financing cost and initial credit rating [J]. Management science, 2014,27 (05): 91-103

[34] Wang Bosen, Shi Dan. Research on the effect of accounting information on bond pricing under market characteristics [J]. Accounting research, 2014 (04): 19-26 + 95

[35] Zhang Junrui, Liu Bin, Cheng Zijian, Wang Fangjun. Research on the relationship between external guarantee of listed companies and uncertain audit opinion of going concern -- Empirical Evidence from a shares of Shanghai and Shenzhen main board market [J]. Audit research, 2014 (01): 62-70

[36] Liu Wenjun. Does the geographical location of auditors affect audit quality? [J]. Audit research, 2014 (01): 79-87

[37] Chen Chao, Li Rongyi. Bond financing cost and bond contract terms design [J]. Financial research, 2014 (01): 44-57

[38] Cao Qiong, bu Hua, Yang Yufeng, Liu Chunyan. Earnings management, audit fees and audit opinions [J]. Audit research, 2013 (06): 76-83

[39] Zhu song, Chen Guanting, Huang Xiaolin. The role of independent audit under centralized shareholding: an analysis based on credit rating of bond market [J]. Accounting research, 2013 (07): 86-92 + 96-97