Empirical Analysis Of The Accounting Firm Reputation And Ipo Quality Relationship

In the process of IPO, the pre-IPO company must expose related company information to the investors in the market. Due to the information asymmetry in the stocks market, in the meantime, the traditional"Lemon Market"problem in the IPO market, both have triggered the demand of credible third agent to expose the company information. In the IPO market,accounting company is an important third agent which exposes the company informantion. The pre-IPO company would like to employ high-reputation accounting company to audit its finance which makes the demand of credible accounting company highly. The spreading-information access is limited for the pre-IPO company, so hiring high-reputation accounting company would spread more valubale and reliable information to the investors and at the same time, high-reputation accounting company enjoys low mornitoring cost. The IPO company has the information advantage, if the IPO company is a low quality company, the investors would face IPO underpricing risk. In general, high reputation accounting company would like to choose high quality IPO company to audit. Reputation is an invisible capital to the accounting company, and the reputation should encourage the accounting company to guarantee the audit quality. The traditional theories think that high-repuation accounting company is willing to choose good quality company to audit and meanwhile, good pre-IPO company is likely to choose high-reputation accounting company. In this paper, firstly, reviewing the accounting reputation and IPO theory both home and abroad and explain the relation between accounting reputation and IPO company quality in theory. Secondly, we introduce the importance of repautation to the accounting company and digital reputation index and rank it. we choose the statistics of IPO companies in A stock market from 2006 to 2008, like ROE, NPR and IPO underpricing. Thirdly, using the statistics to analyze the relation between reputation and the company quality. The major conclusion is the connection between accounting company reputation and IPO company quality is not obvious and the reputation system has not established in China, and the reputation has played little role in choosing the accounting company when IPO.