Audit Quality, Auditor Compensation and Initial Public Offering Underpricing

26 Pages Posted: 14 Aug 2008

See all articles by Xin (Simba) Chang

Xin (Simba) Chang

Nanyang Business School, Nanyang Technological University

André Gygax

University of Melbourne - Department of Finance

Elaine Oon

University of Melbourne - Faculty of Business and Economics

Hong Feng Zhang

Deakin University - Deakin Business School

Date Written: 2007-10-12

Abstract

We jointly study the impact of audit quality on auditor compensation and initial public offering (IPO) underpricing using a sample of Australian firms going public over the period 1996-2003. We find that quality (Big Four) audit firms earn significantly higher fees than non-Big Four auditors, and audit quality is positively associated with IPO underpricing. The positive relation between audit quality and underpricing is more pronounced for small issues, IPOs underwritten by non-prestigious underwriters, and those that are not backed by venture capitalists. Taken together, our results suggest that quality auditors serve as a signalling device that enhances post-issue market value of equity.

Suggested Citation

Chang, Xin and Gygax, André and Oon, Elaine and Zhang, Hong Feng, Audit Quality, Auditor Compensation and Initial Public Offering Underpricing (2007-10-12). Accounting & Finance, Vol. 48, Issue 3, pp. 391-416, September 2008. Available at SSRN: https://ssrn.com/abstract=1224075 or http://dx.doi.org/10.1111/j.1467-629X.2008.00275.x

Xin Chang (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://www.ntu.edu.sg/home/changxin

André Gygax

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010
Australia

Elaine Oon

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia

Hong Feng Zhang

Deakin University - Deakin Business School ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

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