Auditor Quality, Corporate Risk, and the Valuation of New Issues

Michael Firth and Andrew Smith

Review of Quantitative Finance and Accounting, 1995, vol. 5, issue 3, 51 pages

Abstract: This paper tests two hypotheses derived from the Datar et al. (1991) theoretical model of auditor choice by companies newly listing on the stock exchange. The results offer support to their predictions of the demand for auditor quality. In particular, higher-risk companies are associated with the selection of a high-quality auditor, as proxied by a Big Eight firm of accountants. Additionally, companies who employed Big Eight firms had higher market valuations of their stock at the time of listing. Copyright 1995 by Kluwer Academic Publishers

Date: 1995
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