A tale of two intermediaries: Investment banker–auditor social ties and IPO quality
Publication in refereed journal
Officially Accepted for Publication
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AbstractFirms undertaking an initial public offering (IPO) appoint investment bankers and auditors to certify information disclosed to investors. We find that social connections significantly increase the likelihood that the bankers and auditors become involved in the same IPO deal. Although some theory and evidence suggests that information transferred via social networks may enhance economic agents’ performance, other research implies that such links may admit bias into auditor judgment or impair their independence. Empirically, we find that IPO firms report higher discretionary accruals when bankers and auditors are socially connected. We also document that banker-auditor social ties are associated with lower earnings credibility and worse post-IPO performance. However, auditors benefit from social connections with bankers by attracting higher fee premiums and securing more future IPO audit businesses.
Acceptance Date15/04/2024
All Author(s) ListXianjie He, Jeffrey Pittman, Shuwei Sun, Donghui Wu
Journal nameAuditing: A Journal of Practice and Theory
Year2024
PublisherAmerican Accounting Association
Place of PublicationU.S.
ISSN0278-0380
LanguagesEnglish-United States
