Premium
Association between B ig 4 auditor choice and cost of equity capital for multiple‐segment firms
Author(s) -
Choi JongHag,
Lee WooJong
Publication year - 2014
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12011
Subject(s) - cost of capital , audit , equity (law) , cost of equity , business , information asymmetry , association (psychology) , equity capital markets , shareholder , monetary economics , accounting , economics , microeconomics , finance , psychology , corporate governance , profit (economics) , political science , valuation (finance) , law , psychotherapist
Prior studies document a negative association between B ig 4 auditor choice and the implied cost of equity capital, suggesting that B ig 4 auditors mitigate information asymmetry ( IA ) between shareholders and managers. This study extends this line of research and reports that the negative association is more pronounced in multiple‐segment firms, where IA is more severe than in single‐segment firms. We also find that the association between B ig 4 auditor choice and the cost of equity capital becomes more negative as the number of segments increases. Taken together, our findings suggest that the role of B ig 4 auditors in reducing the cost of equity capital becomes more significant when greater IA exists.