Since the international companies are tracked in the database due to investors' interests, one could argue that already listed companies would not be expected to have as perceptible a signalling effect 'f auditor choice, as would be the case in an initial public offering. However, the point 'f the key research question is not event-related, but is, rather, intended to consider the cross-sectional equilibrium effective interest cost savings observable among companies in various countries associated with self-selection 'f a Big 5 auditor, when both the profitability 'f the company and the country in which the company is located are controlled within a multivariate context. Techniques that increase the power 'f tests by both controlling the mix 'f debt and equity, and focusing on the point in time 'f an auditor change are strengths in the research design. The longitudinal results permit the measurement 'f cost savings with greater precision than that which is possible in the broader cross-sectional approach. Since auditing is an annual process, it often involves long-term retention 'f a single auditor, and companies frequently do not go to the market on an annual basis. It is useful to extract the average observed differential in borrowing costs experienced by companies that self-select Big 5 auditors both cross-sectionally and longitudinally. The persistence 'f this differential in countries that reportedly have had little to no litigation (particularly for the five-year periods under study) suggests that the information and reputation effects, apart from "deep pocket" effects are valued. However, the diversity 'f such aspects 'f a country's business setting as litigation exposure would certainly affect the expectations regarding the insurance hypothesis and may create a lack 'f comparability across countries.
The nature 'f the work that uses a database estimate 'f effective interest is distinct from an in-depth examination 'f contracts and the joint selection process that exists in auditing, whereby the auditor accepts the client and the client chooses the auditor. It is difficult to attribute cause and effect, directionally, without more in-depth control for the manner 'f auditor selection. Intricacies within specific industries, particular debt and equity markets, and varying ownership structures, may need control to measure the magnitude 'f not only interest costs savings, but also the more complex cost 'f capital savings (integrating market model-based cost 'f capital derivations) that might be generated from auditor selections by individual companies.
As the effects 'f hedging, derivatives, debt-equity swaps, floating swaps, and the plans for a common market currency have evolved in the 1990s, means 'f relating effective interest, reported financial statement numbers, and market-based measures have increased in complexity. Indeed, one might argue that the lower interest rates observed with Big 5 auditing affiliations relate to more sophisticated