U.S. Big 4 and Local Auditors in the China Initial Public Offering Market

Zhi-Yuan Feng (), Hua-Wei Huang () and Mai Dao ()
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Zhi-Yuan Feng: Beijing Institute of Technology, Zhuhai, P. R. China
Hua-Wei Huang: College of Management, National Cheng Kung University, Taiwan
Mai Dao: The University of Toledo, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2019, vol. 22, issue 04, 1-29

Abstract: This paper examines (1) whether auditor type affects initial public offering (IPO) pricing; (2) whether the effect of IPO pricing is different for clients with different ownership structures. We find that (1) firms being audited by Big 4 accounting firms receive IPO premium while others being audited by local accounting firms do not; (2) Big 4 auditors receive higher audit fees than China’s Top 10 or small local auditors. This paper extends the prior research (e.g., Kumar, P and N Langberg (2009). Corporate fraud and investment distortions in efficient capital markets. The RAND Journal of Economics, 40, 144–172) that reduces agency conflicts between shareholders and manager (by means of better audit quality) and also reconciles corporate misreporting and investment distortions.

Keywords: Initial public offering; audit quality; accounting firms; audit fees (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S0219091519500243

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