Audit quality and seasoned equity offerings methods

• Published in: International review of financial analysis Vol. 83; p. 102227
• Main Authors: Dang, Man, Puwanenthiren, Premkanth, Truong, Cameron, Henry, Darren, Vo, Xuan Vinh
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.10.2022
• Subjects: Audit pricing; Audit quality; Propensity score matching; Seasoned equity offerings; G32; Propensity score matching; G13; Seasoned equity offerings; Audit quality; M42; Audit pricing
• ISSN: 1057-5219; 1873-8079
• DOI: 10.1016/j.irfa.2022.102227

Using a sample of U.S. seasoned equity offering (SEO) during the period 2002–2017, we document that audit quality is associated with SEO issuance method choice. Specifically, firms with higher quality auditors are more likely to adopt the accelerated offerings issue method instead of using other seasoned equity offering methods. We also identify that audit tenure and industry audit specialization influence the relation between audit quality and the likelihood of undertaking accelerated SEO offerings, and that the relationship is more pronounced in the presence of weaker firm-level information and governance environments. Extending from the conclusion that accelerated offerings serve as a quality certification mechanism, we also find that firms completing accelerated offerings enjoy lower audit fees in subsequent years. These firms also exhibit superior post-SEO-issue long-term abnormal stock performance. Overall, our study shows that the certifying and monitoring role of auditors is valuable to clients, underwriters, and investors in SEO transactions. •Firms with higher quality auditors are more likely to adopt the accelerated offerings issue method;•The relationship is more pronounced in the presence of weaker firm-level information and governance environments.•Audit quality serves as an important certification for firms in raising equity capital via SEOs;•Audit tenure and industry audit specialization influence the relation between audit quality and accelerated SEO choice;•The certifying and monitoring role of auditors is valuable to clients, underwriters, and investors in SEO transactions.