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U.S. Big 4 and Local Auditors in the China Initial Public Offering Market

Author

Listed:
  • Zhi-Yuan Feng

    (Beijing Institute of Technology, Zhuhai, P. R. China)

  • Hua-Wei Huang

    (College of Management, National Cheng Kung University, Taiwan)

  • Mai Dao

    (The University of Toledo, USA)

Abstract

This paper examines (1) whether auditor type affects initial public offering (IPO) pricing; (2) whether the effect of IPO pricing is different for clients with different ownership structures. We find that (1) firms being audited by Big 4 accounting firms receive IPO premium while others being audited by local accounting firms do not; (2) Big 4 auditors receive higher audit fees than China’s Top 10 or small local auditors. This paper extends the prior research (e.g., Kumar, P and N Langberg (2009). Corporate fraud and investment distortions in efficient capital markets. The RAND Journal of Economics, 40, 144–172) that reduces agency conflicts between shareholders and manager (by means of better audit quality) and also reconciles corporate misreporting and investment distortions.

Suggested Citation

  • Zhi-Yuan Feng & Hua-Wei Huang & Mai Dao, 2019. "U.S. Big 4 and Local Auditors in the China Initial Public Offering Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(04), pages 1-29, December.
  • Handle: RePEc:wsi:rpbfmp:v:22:y:2019:i:04:n:s0219091519500243
    DOI: 10.1142/S0219091519500243
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