The Correlation Between Audit Quality And IPO Underpricing

In order to provide a financing platform to solve the problem of financing difficulties formore small and medium-sized enterprises, in order to establish a multi-level capital market system,China Securities Regulatory Commission set up the small and medium-sized enterprises board inthe Shenzhen Stock Exchange. Small and medium-sized board practise relatively independentmanagement "independent operation, independent supervision, independent code and index".Information disclosure system of the small and medium-sized board is stricter than the mainboardand regulation to the companies is also stricter. Small and medium-sized plate has occupiedimportant position in the securities market since its foundation ten years ago. So far, there are morethan700companies on the small and medium-sized board list. Ipo system in China has developedfrom the original audit system to the present authorization. Registration system is also beingdiscussed. One of the main tasks of the securities and futures commission in2014is researching theplans for implementation of the registration system. With the constant improvement of the systemfor issuing new shares, IPO pricing efficiency has been further improved. But the phenomenon ofexcess returns in IPO is still widespread. Compared with the western mature capital markets,China’s IPO underpricing rate is very high. In this paper, we study two major problems. One is thereal level of IPO underpricing rate on the small and medium-sized plate. The other is what role doescertified public accountant play for the initial public offerings.This paper generalizes literature at home and abroad on these three aspects: the alternativeindicators for audit quality, IPO underpricing, the correlation between the audit quality and IPOunderpricing. This article analyzes the mechanism of IPO underpricing based on theories below: theinformation asymmetry theory、 the behavioral finance theory、the legal risk hypothesis theory、the time interval hypothesis and the underwriter reputation hypothesis. This article selectscompanies listed on small and medium-sized board during2010.1to2014.1as research samples.Accounting firm reputation and audit fee are selected as audit quality alternative indicators and thansamples A and B are selected. Statistical software SPSS19is used for descriptive analysis,correlation analysis and multiple regression analysis of samples of A and B. The results show thatthe IPO underpricing rate for sample A was35.46%, sample B was34.10%. IPO underpricing ratehas declined these years. Compared with other West mature markets, IPO underpricing rate isobviously on the high side. Public accounting firm reputation and IPO underpricing has positivelycorrelated relationship. Audit fee positively related to the IPO underpricing. So draw conclusions that high audit quality will improve the rate of IPO underpricing. In the process of company listing,signal function of audit is greater than the information function.In view of the above empirical conclusions, this paper puts forward the following suggestions:First, improve the distribution system of small and medium-sized board; Second, improve thepractice environment for certified public accountants, strengthen the management of certified publicaccountants; Third, guide investors actively and encourage rational investment; Fourth, promote theestablishment of the accounting firm reputation mechanism; Fifth, reform system of audit fees.