The effect of an audit firm's brand on security pricing

TLDR: In this paper, the authors examined the demand for high quality auditors and the effect of their brand names on a security's pricing at the time of its initial public offering at the Thai capital market.

Abstract: Purpose – The purpose of this paper is to examine the demand for high quality auditors and the effect of their brand names on a security's pricing at the time of its initial public offering. Because the Thai capital market is highly regulated, especially in terms of auditor selection (i.e. the Thai Security and Exchange Commission provides a list of individually qualified auditors and underwriting firms that the issuing firms have to choose from), it is therefore of interest to look at the demand for reputable audit firms and the importance of reputation capital in the signaling mechanism.Design/methodology/approach – Data were collected from 100 issuing firms that went public between 2003 and 2008. Logistic regression and OLS regression were applied to test the relationship between the use of reputable audit firms and the level of underpricing of new issues. The demand for reputable audit firms in this highly regulated capital market is also examined.Findings – The results suggest that only the newer lar...