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Title: Do abnormal IPO audit fees signal IPO audit quality and post-IPO performance? A principal-agent analysis based on evidence from China
Author(s): Chan, Koon Hung 
Author(s): Mo, P. L. L.
Zhang, W.
Issue Date: 2021
Publisher: American Accounting Association
Journal: Journal of International Accounting Research 
Volume: 20
Issue: 1
Start page: 1
End page: 29
We assess the unexplained information content of abnormal audit fees using a sample of initial public offering (IPO) audits in China. We find that abnormal IPO audit fees are positively associated with manipulation of pre-IPO real activities, suggesting lower audit quality for IPO financial statements. We further find that abnormal IPO audit fees are negatively associated with post-IPO financial performance. These results suggest a strong alignment of interests between the principal (pre-IPO shareholders), whose main interest is to gain listing status, and its agent (the auditor), who is willing to cooperate with the principal for extra economic rents (abnormal audit fees). Our findings that abnormal IPO audit fees are associated with lower audit quality and can help predict post-IPO financial performance have important implications for audit regulators, IPO market participants, and the applicability of agency theory in the context of IPO audits.
DOI: 10.2308/JIAR-2020-054
CIHE Affiliated Publication: Yes
Appears in Collections:BHM Publication

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