Susan M. Albring
Syracuse University
Randal J. Elder
Syracuse University
Jian Zhou
SUNY at Binghamton
Abstract: This paper investigates the relationship between auditor reputation, discretionary accruals, and IPO underpricing. Consistent with previous audit quality research, we find that Big 5 auditors are associated with lower discretionary accruals for IPO companies. We also find that discretionary accruals are associated with increased IPO underpricing, consistent with greater information asymmetry, and that this effect is mitigated by use of a Big 5 auditor. However, in contrast to previous research, we do not find direct evidence of auditor reputation affecting IPO underpricing. Our results are consistent with auditor reputation affecting IPO underpricing indirectly through discretionary accruals.
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