The Pricing of IPO Audit Expertise in the U.S. Initial Public Offerings Market

• In Event: Audit Pricing

Abstract

I investigate the pricing of IPO audit expertise in the U.S. Initial Public Offerings (IPO) market when audit firms and audit offices gain IPO audit experience measured in the IPO market share level and the IPO market concentration level. I find that there are significant fee premiums when an audit firm is a national IPO audit specialist (56 percent fee premium for IPO specialists measured in the IPO market share level and 134 percent fee premium for IPO specialists measured in the IPO market concentration level). Also, there are significant fee premiums when an audit office is a city IPO audit specialist (87 percent fee premium for IPO specialists measured in the IPO market share level and 100 percent fee premium for IPO specialists measured in the IPO market concentration level). My results are robust to control for extant endogeneity with respect to choice of an auditor. My study will contribute to both the auditor specialization literature and the IPO literature by investigating IPO audit specialization. This study also provides useful information to IPO market participants, such as issuers, investors, auditors, and regulators.

Author

• Jungeun Park, Louisiana State University - Baton Rouge