Empirical Study On Auditor Choice In Chinese IPO Market Based On Signaling Theory

According to the rule, initial public offering firm must disclose massive information about managerial situation and the prospect of firm. But the information of IPO was asymmetrical between IPO firm and investor. In order to overcome asymmetry, IPO firm will adopt strategies and disclose data that signal their private knowledge about the firm. Auditor choice is a signaling device for conveying the credibility of the issue. There are a lot of foreign studies about auditor choice of IPO. Most of them use the IPO data of the western countries to examine, but the researches in China are few. Chinese legal environment and development degree of the stock market are different from western countries. In this situation, we don't know the signaling theory whether still establishes in China. Objectively speaking, the research of auditor choice in Chinese IPO market can improve the operation environment of CPA and impel the IPO firm to choose the high-quality auditor, so that investor can estimate the company's valuation and prospects better.This paper is using empirical research methods based on signaling theory and studying auditor choice in Chinese IPO market. In summary about the domestic and foreign literature, it analyzes the behavior form the theory, and then proposes some hypotheses. The data used in this study consist of Shanghai and Shenzhen Stock Exchange IPOs from the three-year period 2003 to 2005, and selected the variable, and then used Simunic & Stein and Clarkson & Simunic logistic regression model to text the factors influencing auditor choice. On the other hand, the auditor quality model of Datar et al. is used to text the relation between IPO valuation and auditor choice. Finally, I will analyze the reason that lead to the results and suggest the proposals.This paper found: in Chinese IPO market, there is a significant negative relationship between retained ownership and auditor quality, a significant positive relationship between underwriter reputation and auditor quality, a significant negative relationship between IPO risk and auditor quality, a positive relationship between financial leverage and auditor quality, but not significant.