Auditor change during listing : effect on IPO premiums

Mohammed, Shamsher and Ali Ahmed, Huson Joher 2006, Auditor change during listing : effect on IPO premiums, Journal of business case studies, vol. 2, no. 4, 4th Quarter, pp. 73-81.

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Title Auditor change during listing : effect on IPO premiums
Author(s) Mohammed, Shamsher
Ali Ahmed, Huson JoherORCID iD for Ali Ahmed, Huson Joher
Journal name Journal of business case studies
Volume number 2
Issue number 4
Season 4th Quarter
Start page 73
End page 81
Publisher The Clute Institute for Academic Research
Place of publication Littleton, Colo.
Publication date 2006
ISSN 1555-3353
Keyword(s) auditor switch
ipo premium
Summary The study investigates the relationship between auditing services provided to 213 listed firms over a period from 1996 to 2000 by reputable (or tier 1) and non-reputable (non-tier 1) audit firms and the initial returns at listing. We use market adjusted initial return to reflect the firm’s choice of auditor during the initial public offering (IPO’s). The findings show that there is an inclination for listed firms to engage tier 1 audit firms, probably due to management’s intention of signal the firm’s favorable private information and credibility and integrity of reported financial information and ultimately increasing their chances of getting listed. The findings alos show that there is no significant difference in the initial returns of IPO’s firms irrespective of the reputation of auditors. However, there is a significant difference in the initial return of main and second board firms at listing whether firms are either audited by Tier 1 or non-Tier 1 audit firms. Firms that had upward switch showed higher returns, inconsistent with the auditor reputation hypothesis. This results, however, could be biased by the large number of new firms that did not switch auditors at listing, probably due to lack of time to make changes before listing, and/or have engaged tier 1 auditors at incorporation in anticipation of listing. However, the findings showed significant higher returns for second board firms relative to main board firms. These results do not support the widely held view that firms that seek listing do switch auditors prior to their listing for positive market signalling. The results indicate that auditor’s reputation is not an important determinant of the IPO’s initial return.
Language eng
Field of Research 140207 Financial Economics
Socio Economic Objective 910206 Market-Based Mechanisms
HERDC Research category C1.1 Refereed article in a scholarly journal
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Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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Created: Wed, 17 Feb 2010, 10:43:51 EST by Huson Ali Ahmed

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