Impact of board ownership, CEO‐Chair duality and foreign equity participation on auditor quality choice of IPO companies

A.K.M. Waresul Karim, Tony van Zijl and Sabur Mollah

International Journal of Accounting & Information Management, 2013, vol. 21, issue 2, 148-169

Abstract: Purpose - The purpose of this paper is to examine the impact of corporate governance on auditor quality choice by IPO companies in an emerging market setting. It seeks to identify whether efficiency or opportunism is the driving force behind the choice of auditors in Bangladeshi firms going public. We try to see whether ownership concentration in the hands of a owner‐CEO wins over foreign shareholders in the contest of ensuring financial reporting quality. Design/methodology/approach - Multivariate analysis has been carried out on all IPOs made during 1990 to 2005 whose financial statements were available. Logistic regression tool has been used to identify client's corporate governance attributes affect their choice of auditors. In total, three corporate governance attributes – CEO‐Chair duality, retained ownership, and foreign equity participation – were used to test the impact of ownership structure on auditor choice. Findings - Our findings from logistic regression suggest that CEO‐Chair duality and the degree of foreign equity participation are significant determinants of auditor choice while proportion of board ownership is not. In addition, issuer size and whether the issuer is a green field operation also influence auditor choice while the length of a firm's operating history does not seem to matter. The findings support agency theory prediction that (at least one category of) principals (foreign shareholders in this case), are likely to trade‐off higher monitoring costs (of hiring a higher quality auditor) with agency costs arising from asymmetric information, primarily borne by absentee owners. Originality/value - The work is based on empirical data directly from company financial statements. It uses audited financial statements and makes objective analysis of auditor choice dynamics in a frontier market that demonstrated significant growth of IPO activity in recent years.

Keywords: Auditing; Auditors; Accounting; Bangladesh; Initial public offering; Corporate governance; Auditor choice (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijaimp:v:21:y:2013:i:2:p:148-169

DOI: 10.1108/18347641311312285

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