Review of Quantitative Finance and Accounting

, Volume 5, Issue 3, pp 241–251 | Cite as

Auditor quality, corporate risk, and the valuation of new issues

  • Michael Firth
  • Andrew Smith


This paper tests two hypotheses derived from the Data et al. (1991) theoretical model of auditor choice by companies newly listing on the stock exchange. The results offer support to their predictions of the demand for auditor quality. In particular, higher-risk companies are associated with the selection of a high-quality auditor, as proxied by a Big Eight firm of accountants. Additionally, companies who employed Big Eight firms had higher market valuations of their stock at the time of listing.

Key words

new issues valuation risk auditor quality 


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Copyright information

© Kluwer Academic Publishers 1995

Authors and Affiliations

  • Michael Firth
    • 1
  • Andrew Smith
    • 2
  1. 1.Department of Accounting and Finance, Faculty of BusinessLingnan CollegeHong Kong
  2. 2.Faculty of Commerce and AdministrationVictoria University of WellingtonWellingtonNew Zealand

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