Rent-seeking Motivation And Audit Demand Of IPO Companies

In the stock issuance examination system, the accounting firm may have a dual identity inthe IPO process. The firm provides audit services to IPO companies and has auditor in the stockissuance examination committee at the same time. Listing brings huge gains to companies,making companies have strong rent-seeking motivation to pass the review of the stock issuanceexamination committee. On the other hand, the accounting firms are willing to participate inrent-seeking activities for higher market share and high audit fees. When both sides can getrent-seeking rents in the rent-seeking activities, the activities may become a reality.Based on the analysis results of the IPO market system background and rent-seekingmotivation, this paper uses data of the GEM (Growth Enterprise Market) IPO companies from2009to2012and tests the effects of rent-seeking activities, auditor choice of IPO companies,the existence of rents and subsequent impact of rent-seeking activities. The study finds that: thepassing IPO application probability of the companies audited by committee-related firms issignificantly higher than non-committee-related firms; committee-related firms have biggermarket share and higher audit fees than non-committee-related firms in the IPO audit marketand the post-IPO first annual report audit market.The results show the following conclusions: in order to pass the review of the stockissuance examination committee, some IPO companies hire the accounting firm which hasstock issuance examination committee resource for IPO audit or post-IPO annual report auditand pay the firm extra audit fees for efficient rent-seeking. Simultaneously, the accounting firmsassist the IPO companies by their special resource in the stock issuance examination committee.The rent-seeking activity leads to a significant higher passing IPO application probability of theIPO companies.