 Auditor choice by IPO firms in Germany: information or insurance signalling?Hansrudi Lenz and Markus Ostrowski International Journal of Accounting, Auditing and Performance Evaluation, 2005, vol. 2, issue 3, 300-320 Abstract: This paper examines the auditor choices of all the IPOs of German firms between 1990 and 1999. The final sample consists of 306 firms. In the IPO context, audit quality can be used as a signal about firm value (information signalling). On the other hand, it can also be used by issuers and underwriters as a means of reducing their liability and reputation risks (insurance signalling). Larger offerings lead to increased liability and reputation risks. Our hypotheses try to differentiate between the two audit roles. The empirical results demonstrate that in the German institutional context auditor choice by IPO firms seems to be dominated by 'insurance signalling', whereas 'information signalling' seems to be of minor importance. Only in the large-deal segment IPO firms with high firm-specific risk more often choose a high-quality auditor, i.e., a Big 6 firm. Our results further support the hypothesis that only in this segment do prestigious underwriters prefer Big 6 auditors. Keywords: IPO; initial public offerings; auditor choice; information signalling; insurance signalling; Germany; audit quality; firm value; issuers; underwriters; liability risks; reputation risks; investor uncertainty. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:ijaape:v:2:y:2005:i:3:p:300-320 Access Statistics for this article More articles in International Journal of Accounting, Auditing and Performance Evaluation from Inderscience Enterprises Ltd |
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