This study examines some economic and organizational changes resulting from the conversion of mutual thrift institutions (MTI) to publicly traded stock charter corporations. We focus on the relation between the initial value of the converted firm and (i) subscription decisions by management and by regular depositors, and (ii) the employment of a prestigious underwriter or auditor. Whereas the proportion of managerial subscriptions displays a convex relation with the firm's initial value, the relation between the regular depositor subscription and the converted firm's value is linear and positive. The status of the underwriter or auditor is unrelated to the value of the converted firm. These findings are attributed to the regulatory setting governing the MTI conversion process, constraints on ownership holdings and the oversight function of the regulator.

This paper investigates whether entrepreneurs manipulate earnings in the periods prior to taking their firms public through the choice of accounting conventions. The preponderance of evidence, using powerful accrual tests that were able to detect earnings management in other contexts, indicates little, if any, manipulation. To the extent that there is earnings management, the results suggest that this phenomenon is more pronounced among small firms and among firms with large financial leverage and is to a lesser degree related to the quality of the underwriters and auditors employed when going public. Résumé. Les auteurs ont voulu savoir si les entrepreneurs manipulaient les bénéfices dans les exercices précédant un appel public à l'épargne par le truchement du choix des normes et conventions comptables. La prépondérance des preuves recueillies à l'aide des puissantes techniques existantes de sondage des produits et des charges visant à déceler les cas d'≪ accommodation » des bénéfices dans d'autres contextes, révèle une faible manipulation, sinon aucune. Dans la mesure où il y a accommodation des bénéfices, les résultats obtenus donnent à penser que le phénomène est davantage accentué chez les entreprises de petite taille ou dont le levier financier est élevé, et qu'il est relié de façon plus ténue à la qualité des preneurs fermes et des vérificateurs à qui l'entreprise a recours lorsqu'elle fait appel public à l'épargne.

ABSTRACT This paper examines whether the identity of the individual audit partners provides informational value to capital market participants beyond the value provided by the identity of the audit firms. Using data from Taiwan, where firms are mandated to disclose the names of the engagement partners, we find a positive association between the partner's quality and the client firm's earnings response coefficient. We also find a positive market reaction when a firm replaces a lower quality partner with a higher quality one. Moreover, we find evidence that firms audited by higher quality partners experience smaller initial public offering (IPO) underpricing and are able to obtain better debt contract terms. Overall, these results suggest that the quality of engagement partners matters to capital market participants.

Mandatory audit partner rotation has been adopted in certain countries while audit firm rotation is still being debated in many places. Most of the extant research on the relation between auditor tenure and earnings quality provides evidence at the audit firm level. However, since audit firm tenure is correlated with partner tenure and audit firm rotation is more costly than partner rotation, it is important to know whether earnings quality is related to audit firm tenure, partner tenure, or both. We investigate this issue using a sample of Taiwanese companies for which the audit report must be signed by two partners with their names disclosed in the report. Using performance adjusted discretionary accruals as a proxy for earnings quality, we find that the absolute and positive values of discretionary accruals decrease significantly with partner tenure. After controlling for partner tenure, we find that absolute discretionary accruals decrease significantly with audit firm tenure. Our findings are not consistent with the arguments that earnings quality decreases with extended audit partner tenure and that audit firm rotation in addition to partner rotation would improve earnings quality. Our results are robust to alternative ways of measuring partner tenure under the dual signature system. However, since the audit reports do not disclose which partner is responsible for maintaining the auditor-client relationship, measurement errors in partner tenure remain an issue that cannot be fully addressed in the context of our study.