Information quality and the valuation of new issues |
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| Institution: | 1. KU Leuven, Belgium;2. Shanghai University of Finance and Economics, China;3. Central University of Finance and Economics, China;4. National University of Singapore, Singapore;5. Cornell University, United States;1. Charlton College of Business, University of Massachusetts Dartmouth, USA;2. College of Business, City University of Hong Kong, Hong Kong;3. School of Business, Hong Kong Baptist University, Hong Kong;4. Graduate School of Management, Clark University, 950 Main St., Worcester, MA 01610, USA;1. Department of Risk Management and Insurance, Feng Chia University, 100, Wenhwa Road, Seatwen, Taichung 40724, Taiwan;2. Department of International Business Management, Dayeh University, No. 168, University Road, Dacun, Changhua 51591, Taiwan;3. Feng Chia University, Business School, 100, Wenhwa Road, Seatwen, Taichung 40724, Taiwan;4. Department of Business Administration, St. John’s University, Taipei Campus, No. 499, Section 4, Tamking Road, Tamsui Dist, New Taipei City, Taiwan;1. University of West Georgia, 1601 Maple St, Carrollton, GA 30118, United States;2. School of Accounting, Florida International University, Miami, FL 33199, United States;1. Business School, Chengdu University of Technology, China;2. School of Accounting, Southwestern University of Finance and Economics, China;3. Center for Accounting, Finanace and Institutions, Sun Yat-sen University, China |
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| Abstract: | The prevailing belief in the marketplace holds that the choices of auditor and investment banker affect the price of an initial public offering. This belief reflects the idea that the auditor and investment banker quality provides information about the firm's true value. This paper presents a model giving this belief theoretical support. Under plausible conditions, it is shown that an entrepreneur with favorable information about his firm's value chooses a higher-quality auditor and investment banker than an entrepreneur with less favorable information. As a result, firm value is an increasing function of auditor and investment banker quality. |
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