External monitoring or noise interference? Negative media tone, audit quality and cost of debt financing

Purpose – This study examines the impact of key audit quality dimensions on the cost of debt financing and investigates whether negative media tone moderates this relationship. It aims to reveal whether negative media tone functions as an external monitoring or as informational noise in debt pricing. Design/methodology/approach – Using a sample of A-share listed firms in China from 2014 to 2023, this study employs fixed effects models to examine the impact of audit quality dimensions and their interaction with negative media tone on cost of debt financing. Findings – The findings show that larger auditor size and dual-level industry specialization significantly reduce cost of debt, while higher audit fees and modified audit opinions increase it. These effects are more pronounced for firms audited by domestic leading audit firms than those audited by the Big Four. Negative media tone acts as a monitoring amplifier, reinforcing the market's pricing response to audit quality signals rather than distorting it. This moderating effect remains consistent across both state-owned and non-state-owned firms. Originality/value – This study extends signaling theory and media governance literature by documenting how negative media tone reinforces the pricing effect of audit quality in debt markets. It provides new evidence from an emerging market where formal and informal oversight mechanisms jointly influence capital market perceptions, with practical implications for improving credit risk assessment.

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