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- Publisher
- Wiley
- Copyright
- Copyright © 2007 Wiley Subscription Services, Inc., A Wiley Company
- ISSN
- 1090-6738
- eISSN
- 1099-1123
- DOI
- 10.1111/j.1099-1123.2007.00360.x
- Publisher site
- See Article on Publisher Site
Abstract
The choice of a non‐Big 5 audit firm is optimal for some IPO companies. The choice of audit firm is important because auditor reputation may influence the pricing of the offering. This paper investigates the relationship between IPO underpricing and auditor compensation and proxies for non‐Big 5 audit quality. We develop a continuous measure of auditor reputation based on factor analysis. This measure of auditor reputation is associated with lower IPO underpricing and higher auditor compensation, suggesting that auditor quality is an important determinant for firms hiring non‐Big 5 auditors. We also examine the underlying constructs for auditor quality to determine their separate effects on IPO underpricing and auditor quality. Non‐Big 5 national firms are associated with lower underpricing and higher auditor compensation, suggesting that these firms are perceived to be quality differentiated from non‐national firms. SEC experience for non‐national firms is associated with higher audit fees, suggesting this experience is perceived to be valuable.
Journal
International Journal of Auditing – Wiley
Published: Jul 1, 2007