Auditing's Involvement in Initial Public Offering Success

Abstract:     
We examine two audit attributes that may contribute to a successful initial public offering (IPO). We define success as an IPO firm that reaches the capital markets. We find that the existence of a high quality (Big 5) auditor and the absence of a going concern audit report are positively associated with the completion of the IPO process, particularly for medium and small firms. Our results are robust after controlling for the endogeneity between auditor selection and the presence of high quality underwriters and venture capitalist. Consistent results were also noted when examining only firms with a high probability of receiving a going concern opinion and those successful IPOs that were difficult-to-place in the market. Finally, withdrawn firms were found to shed their Non-Big 5 auditors and going concern audit reports prior to re-emerging in the capital markets.

Keywords: Audit quality,audit opinions, initial public offerings

JEL Classification: M41, M49, G24

working papers series