I want to talk to you a little bit about a paper by Michael Minnis, who finds that audited firms, private companies, have significantly lower cost of debt. So when they get a loan, the interest rate is lower, and they're more likely to get a loan besides, and that lenders place more weight on audited financial information in setting the interest rate. So what he found, on average, is that audited private firms enjoy 70 basis point lower interest rate, on average, with a range of 25 basis points to 105 basis points, depending on what model he used. So what I'd like to do is focus you in on his firms and in particular, the number of companies that he examined. You'll see that the biggest part of a sample is from 2001 to 2007, so I do like this. This is much more current information. We're looking about 12,000 firms altogether and these are private companies. So if you look here in this Panel B of this table, you'll see that most companies do not get an audit. You see that out of the 25 and some other thousand firms, only 5,000, close to 6,000, choose to get an audit. Most of them do get some form of attestation service from the audit firm, but it's going to be a lower assurance level. It's going to be a review. So you see about 11,600 or so companies getting a review. Now, remember, a review, the auditor is providing limited assurance that there are no material misstatements. An audit, it is high assurance, reasonable assurance. In an audit, the auditor's coming up with an evidence-based opinion. The auditor does not render an opinion in a review. In the compilation service, there is no assurance being provided. This is basically pulling the numbers together that management gives them. One more thing about a review, a review does require the auditor to do some procedures, but they are limited. The procedures are inquiry of management, you do ask management a series of questions about their financials, and what's called analytical procedures, which is ratio analysis, time series analysis, industry comparisons, where you're looking for the presence of unexpected relationships or the absence of expected ones. But the audit you see is not very popular and yet, those companies that get an audit do see significant benefits. This is where I want you to focus. The interest rate for those companies that get an audit on average is 6.8 percent instead of, with a standard deviation of 1.6 this what that's getting at. And the non-audit firms have an interest rate of 7.5 percent overall. You do see some other characteristics, don't you? About companies that get an audit. It's not the case, is it, that once you're a big company, you no longer need an audit. In fact, if you look at total assets, and these are scaled, so that may even be the log of total assets, 12.9 versus 4.6. In much larger companies, those companies tend to get an audit. Do you see that they're both about the same when it comes to their current liquidity, the current ratios are really similar to one another? You do see companies that get audits do tend to have higher assets in the property, plant, and equipment, and sometimes you will get audits of private companies that have significant property, plant, and equipment because that property, plant and equipment is collateral on loans, and so lenders want to know that the collateral that is going to be used, as what they get in the event of non-repayment from that company, is actually going to be real and properly carried at on the financial statements. So the big takeaway here though, is that, collapsing across all firms, you see a significant 0.69 basis point. One hundred basis points is one percentage point, okay. So you see 70 percent of a full percentage point reduction in the interest rate. And if you think that's not a big deal, just pull up moneytree.com or bankrate.com and do a mortgage of $500,000 and then plug in a four percent versus a five percent interest rate over a 15-year period and you'll see that it's a significant chunk of change, significant amount of interest saved over the life of the mortgage. What you also see is that, the advantage of getting an audit is actually larger for the smaller companies. So even though, companies are more likely to purchase an audit when they're larger, you get more of a systematically larger savings on interest rates if you're a smaller company. Now, you could make one more analysis and that would be to compare the interest rate savings to the audit fee. So let me ask you a question. Suppose the interest rate savings over time for a 10-year loan, as a result of the interest rate savings here, suppose it were, just for kicks, one million dollars, but the audit fee is $1.5 million. What would be your conclusion? Did the company overpay for the audit? Well, your answer should be that there are other benefits presumably to getting an audit. One of the key benefits is getting an interest rate reduction. Another reason you get an audit is that it improves your reputation, not only among the bankers, but also should you ever go public to investors, also to your current employees, and to your current customers, your current alliance partners, so that the audit more generally reduces transactions costs, one of the main ones of which is interest rate savings. And there's even another benefit to the audit. Auditors are learned business professionals, who have looked at business processes at multiple companies. In many audits, you get so many good suggestions about ways to improve your business processes along the way that sometimes you'll have managers say, I know we save money on interests as a result of the audit, but just having someone come and look at our company's business processes with a fresh set of eyes made the audit fee more than well worth it. So, we will continue down this path of what it means to prove financial reporting quality later in the course, but I wanted you to see today that an audit very tangibly improves a company's cost of capital.