Does Auditor Choice Matter to Foreign Investors? Evidence from Foreign Mutual Funds Worldwide
Florida International University
Nataliya S. Zaiats
Simmons College School of Management
University of New South Wales (UNSW) - School of Banking and Finance; Financial Research Network (FIRN)
Journal of Banking and Finance, Forthcoming
This paper examines whether firms' auditor choice affects their ability to access foreign equity capital. Using the equity holdings of 34,837 foreign mutual funds from 28 countries, we find evidence that appointing a Big 4 auditor increases the level of foreign mutual fund ownership in firms. This link strengthens in firms with high information asymmetries and persists even at the country level. But the importance of auditor choice varies across three exogenous information events. The Big 4 effect declines after the Enron-Andersen fiasco in 2002, especially for non-U.S. firms not subject to the provisions of the Sarbanes-Oxley Act. Auditor choice and IFRS adoption play complementary roles in determining a firm's foreign ownership, and such roles are more pronounced in firms from countries with strong securities regulations and enforcement regimes. Finally, appointing Big 4 auditors is particularly important for firms to attract foreign capital during the 2008 global financial crisis.
Number of Pages in PDF File: 51
Keywords: foreign mutual funds, auditor choice, IFRS, Enron-Andersen Collapse, and 2008 global financial crisis
JEL Classification: G11, G23, M42Accepted Paper Series
Date posted: September 3, 2011 ; Last revised: August 15, 2014
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