Common Auditors and Credit Costs in Times of Crisis: Evidence From the COVID-19 Pandemic

We provide evidence that common auditors among lenders and borrowers mitigate the aggravating effect of COVID-19 on syndicated loan pricing. Specifically, a common auditor alleviates lenders’ COVID-19 exposure constraints, resulting in a 2.5% decrease in the offered loan spread. This easing effect is magnified by the length of the auditor-lender tenure; it is concentrated in loans between highly exposed lender–borrower pairs and, notably, further facilitates access to loan financing for auditor-connected borrowers. Nonetheless, this does not constitute irresponsible lending behavior based on a comparison of ex post loan performance for borrowers with common auditors versus their non-common-auditor counterparts. Our results highlight an important yet overlooked function of common auditors: their ability to act as a broker between lenders and borrowers during periods of heightened stress.