The Association between audit quality, accounting disclosures and firm-specific risk: evidence from initial public offerings
In an environment where expected litigation costs were relatively low and the provisionof forward-looking accounting information was voluntary (Australia), we showthat IPO firms voluntarily providing an earnings forecast within the offer document aresignificantly more likely to use a high quality auditor, consistent with the signaling role ofauditor attestation being at least partially dependent on the extent of voluntary, auditeddisclosures. Any trade-off between auditor choice with either firm risk or retainedownership is confined to smaller IPOs and/or those using less prestigious underwriters,which are also those where support for the signaling role of auditors (and voluntarydisclosure) is evident using a valuation model. Our results highlight the failure of "stylised"signaling models such as [Datal' et al. (1991); Hughes (1986)] to recognize extensiveinteraction between various mechanisms, resulting in multiple signaling equilibria.
Year of publication: |
2006
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Authors: | Lee Phillip ; Stokes Donald ; Taylor Stephen ; Walter Terry |
Publisher: |
World Scientific Publishing Company |
Saved in:
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