This paper models the borrowing decision of a small firm seeking a bank loan when it can optionally hire, at a cost, an independent external auditor to convey its risk characteristics to lenders. The analysis shows that a necessary condition for a potential borrower to prefer having an audit to...

Finance companies have been perceived as isolated and insignificant lenders, attracting high risk borrowers and charging these borrowers relatively high prices. Using the 1988 National Survey of Small Business Finance, this study examines the relationship between finance companies and other...