IPO-Audit Expertise, Audit Quality, and Capital Allocation Efficiency: Evidence from China

51 Pages Posted: 13 Jul 2021

See all articles by Donghui Wu

Donghui Wu

The Chinese University of Hong Kong; Center for Institutions and Governance

Zhifeng Yang

Stony Brook University

Feiteng Ye

Shanghai Lixin University of Commerce

Date Written: June 1, 2021

Abstract

Backed by China's economic growth, the initial public offering (IPO) market in China has been one of the most vigorous in the world. In this market, practicing auditors routinely sit on the regulatory committee responsible for screening prospective IPO firms. Against this backdrop, we examine whether IPO-audit expertise can influence IPO-audit quality and capital allocation. We find that auditors with richer IPO-audit experience improve the quality of earnings in IPO prospectus, earn an audit fee premium, and are significantly more likely to be assigned to IPO engagements by audit firms or appointed to the regulatory committee by regulators. We also show that, by enhancing the credibility of information disclosure in IPO prospectus, IPO exper-tise of the regulatory committee members and the IPO engagement auditors improves capital allocation efficiency. Collectively, our evidence implies that a more sophisticated audit profes-sion can contribute to the development of capital market in a country.

Keywords: Auditor specialization; IPO audits; capital allocation efficiency

Suggested Citation

Wu, Donghui and Yang, Zhifeng and Ye, Feiteng, IPO-Audit Expertise, Audit Quality, and Capital Allocation Efficiency: Evidence from China (June 1, 2021). Available at SSRN: https://ssrn.com/abstract=3876506 or http://dx.doi.org/10.2139/ssrn.3876506

Donghui Wu (Contact Author)

The Chinese University of Hong Kong ( email )

Sha Tin
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Hong Kong
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HOME PAGE: http://www.bschool.cuhk.edu.hk/staff/wu-donghui/

Center for Institutions and Governance ( email )

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HOME PAGE: http://www.bschool.cuhk.edu.hk/centres/centre-for-institutions-and-governance/

Zhifeng Yang

Stony Brook University ( email )

Health Science Center
Level 3, Room 043
Stony Brook, NY 11794-8322
United States

Feiteng Ye

Shanghai Lixin University of Commerce ( email )

2800 Wenxiang Road
Shanghai, Shanghai
China

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