Impact of Retained Ownership, CEO-Chair Duality, and Foreign Equity Participation on Auditor Choice of IPO Firms: Evidence from an Emerging Market

International Journal of Accounting and Information Management 21(2), pp. 148-169.

30 Pages Posted: 23 May 2010 Last revised: 14 Jun 2014

See all articles by A.K.M. Waresul Karim

A.K.M. Waresul Karim

Saint Mary's College of California - Graduate Business Programs

Tony van Zijl

Victoria University of Wellington - Faculty of Commerce and Administration

Sabur Mollah

Sheffield University Management School, University of Sheffield; Swansea Management School, Swansea University; Hull University Business School; Hull University Business School

Date Written: March 23, 2010

Abstract

In this paper we study the impact of corporate governance characteristics on IPO firms’ auditor choice in an emerging market setting. We use three corporate governance attributes – CEO-Chair duality, retained ownership, and foreign equity participation to test the impact of ownership structure on auditor choice of 129 Bangladeshi firms that went public during the period 1990 to 2005. Our findings from logistic regression suggest that CEO-Chair duality and the degree of foreign equity participation are significant determinants of auditor choice while proportion of board ownership is not. In addition, issuer size and whether the issuer is a green field operation also influence auditor choice while the length of a firm’s operating history does not seem to matter. Our findings support agency theory prediction that (at least one category of) principals (foreign shareholders in this case), are likely to trade-off higher monitoring costs (of hiring a higher quality auditor) with agency costs arising from asymmetric information, primarily borne by absentee owners. It also supports the signaling role managers of green field operations play by hiring higher quality auditors to mitigate the uncertainties associated with their offerings.

Keywords: Initial Public Offering, Ownership Structure, Auditor Choice

JEL Classification: G32, G15

Suggested Citation

Karim, A.K.M. Waresul and van Zijl, Tony and Mollah, Sabur, Impact of Retained Ownership, CEO-Chair Duality, and Foreign Equity Participation on Auditor Choice of IPO Firms: Evidence from an Emerging Market (March 23, 2010). International Journal of Accounting and Information Management 21(2), pp. 148-169.. Available at SSRN: https://ssrn.com/abstract=1613455 or http://dx.doi.org/10.2139/ssrn.1613455

A.K.M. Waresul Karim (Contact Author)

Saint Mary's College of California - Graduate Business Programs ( email )

United States

Tony Van Zijl

Victoria University of Wellington - Faculty of Commerce and Administration ( email )

RH 606, Pipitea Campus, 6th Floor, Rutherford Hous
23 Lambton Quay
Wellington
Australia

Sabur Mollah

Sheffield University Management School, University of Sheffield ( email )

Conduit Road
Sheffield, Sheffield S10 1FL
United Kingdom

Swansea Management School, Swansea University ( email )

Singleton Park
Swansea, Wales SA2 8PP
United Kingdom

Hull University Business School ( email )

Cottingham Road
Hull, Great Britain HU6 7RX
United Kingdom

Hull University Business School ( email )

Cottingham Road
Hull, Hull HU6 7RX
United Kingdom

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