| Summary: | 碩士 === 元智大學 === 會計學系 === 96 === The purpose of this paper is to investigate the relationship between audit quality and firm performance. Auditing literature have discussed the valuation effects of selecting a credible auditor for the IPO. Beatty (1989) tests the relationship between auditor reputation and the characteristics of IPOs. He argues that the market’s perception of the audit quality is valuable to firms and shows significantly lower underpricing for IPOs which are audited by reputable auditors. According to this argument, we broaden the sample to include non-IPO firms, adopt the panel data regression models, and then examine whether firms wish to signal favorable information will demand for a higher quality audit by purchasing the reputation capital of auditors. We use three measures of stock returns to proxy for the firm performance and three measures which are auditor size, audit fees, and the interaction between both of them, to represent unobservable audit quality. Our empirical results show that firms audited by large auditor size or audited by prestige auditors and pay more audit fees simultaneously will have better stock price performance. We document that the auditor reputation effect not only occurs in the IPO market but also applies to our sample of North American public firms.
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