Abstract: Taking the punished auditors from 2000 to 2014 as the starting point, this paper systematically tests the signal value of auditor’s impaired personal reputation in the debt financing activities of the client companies. The findings indicate that auditor’s impaired personal reputation would result in the increasing of debt financing costs of the client companies, and this kind of reputation effect is more significant in private enterprise financing, which verifies the regulation value of audit’s reputation mechanism in China’s securities markets. The results of further study show that the auditor’s reputation effect would be strengthened along with the increasing of the degree of punishment, but the quality control mechanism in larger firms can remit the negative effect of auditor’s impaired personal reputation to some extent.

Key words: punishment of auditor; damaged reputation; quality control; cost of debt financing