Article

China Accounting and Finance Review

, 15:10

First online:

Open Access This content is freely available online to anyone, anywhere at any time.

会计师事务所发审委身份与IPO 客户质量-基于 寻租假说与声誉假说的实证研究

  • Jinsong TanAffiliated withBusiness School, Contemporary Accountancy and Finance Research Center, Sun Yat-sen University
  • , Xiangting KongAffiliated withBusiness School, Contemporary Accountancy and Finance Research Center, Sun Yat-sen University
  • , Yang YiAffiliated withBusiness School, Contemporary Accountancy and Finance Research Center, Sun Yat-sen University

PORC Audit Firms and IPO Client Quality: An Empirical Study of Rent-Seeking and Reputation-Based Explanations

Abstract

Based on the event in which the partner of an audit firm is appointed as a member of the Public Offering Review Committee (PORC), our investigation examines the relationship between an audit firm’s PORC member status and the quality of its initial public offering (IPO) clients and how an audit firm’s size influences that relationship from the perspectives of rent-seeking and reputation-based explanations. Using a sample of all successfully listed firms from 2004 to 30 April 2011 and using conservatism and discretionary accruals to represent earnings quality and market-adjusted cumulative abnormal return to represent corporate economic performance, we find that (1) in the pre-IPO period, the clients that choose PORC audit firms have a higher level of conservatism in their earnings and lower income-increasing discretionary accruals than firms that choose other audit firms; and (2) in the post-IPO period, the clients that choose PORC audit firms have higher market-adjusted cumulative abnormal returns. Furthermore, the difference in quality between PORC audit firms’ clients and other audit firms’ clients is especially significant in the small PORC audit firms’ clients group. These findings support the reputation-based explanation.

Keywords

PORC Audit Firm Rent-Seeking Reputation IPO Client Quality