The Accounting Review Vol. 72 No. 1 1997
Costs and benefits of audit quality in the IPO market: A self-selection analysis.
open access
Abstract
This study examines the trade-offs that an entrepreneur makes in an initial public stock offering (IPO) between the incremental costs and benefits of selecting a Big 6 audit firm. The benefit of hiring a Big 6 auditor is assumed to be reduced underpricing, consistent with Beatty (1989) and Balvers et al. (1988). The cost of hiring a Big 6 auditor is higher auditor compensation. Evidence drawn from a sample of lPOs during the early 1990's is consistent with a differentiated market for audit services where owners select the type of auditor that minimizes the sum of underpricing and auditor compensation costs.
- DOI
- 10.2308/tar-9702075142
- Volume
- 72
- Issue
- 1
- Pages
- 67-86
- Language
- en
- Sources
- openalex crossref