Theoretical Economics Letters, 2019, 9, 2262-2282 https://www.scirp.org/journal/tel ISSN Online: 2162-2086 ISSN Print: 2162-2078 DOI: 10.4236/tel.2019.97143 Sep. 17, 2019 2262 Theoretical Economics Letters Corporate Governance Practices and Audit Quality: Do They Matter for the Cost of Debt? Sami Bacha FSEG and LAMIDED, University of Sousse, Sousse, Tunisia Abstract This paper sheds light on the effect of corporate governance practices and au- dit quality on the cost of debt. Particularly, we investigate the effect of the ownership structure and the audit committee independance, as well as the reputation of the external auditor, on the cost of debt. Based on a sample of Tunisian listed companies over the period 2007 to 2016 and using OLS re- gression models estimated with robust standard errors, our findings show that the cost of debt is inversely related to the director board size and the ownership concentration. Tunisian debtholders favour monitoring mechan- isms that are likely to limit managerial opportunism and consider board monitoring effectiveness and the presence of blockholders as a source of greater assurance. The results also reveal evidence of a debt pricing effect of audit quality as measured by auditor size (Big4). The findings report, howev- er, that the board composition and the presence of managerial shareholders, as well as the independence of audit committee have non-significant effect on the cost of debt. Keywords Corporate Governance, Audit Quality, Cost of Debt, Ownership Structure, Audit Committee 1. Introduction The agency theory attests that the lenders may support a double risk linked to the shareholders expropriation behavior and the misappropriation by the com- pany of a part of the investment earnings. Unlike shareholders, debtholders have no effective control on the use of the funds they provide. These funds can then be used opportunistically by corporate managers to achieve their own interest or these of shareholders. Because information is asymmetrical, external financing is How to cite this paper: Bacha, S. (2019) Corporate Governance Practices and Audit Quality: Do They Matter for the Cost of Debt?. Theoretical Economics Letters, 9, 2262-2282. https://doi.org/10.4236/tel.2019.97143 Received: August 7, 2019 Accepted: September 14, 2019 Published: September 17, 2019 Copyright © 2019 by author(s) and Scientific Research Publishing Inc. This work is licensed under the Creative Commons Attribution International License (CC BY 4.0). http://creativecommons.org/licenses/by/4.0/ Open Access