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Audit quality, auditor compensation and initial public offering underpricing

  • Xin Chang
  • André F. Gygax
  • Elaine Oon
  • Hong Feng Zhang
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    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. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 AFAANZ.

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    Article provided by Accounting and Finance Association of Australia and New Zealand in its journal Accounting & Finance.

    Volume (Year): 48 (2008)
    Issue (Month): 3 ()
    Pages: 391-416

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    Handle: RePEc:bla:acctfi:v:48:y:2008:i:3:p:391-416
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