Organization Capital and Firm Auditor Choice

Abstract

This study investigates the relation between auditor choice and organization capital, an intangible capital of firms. Prior research suggests that firms' intangibles are positively associated with information asymmetry between management and investors, thus increasing firms' cost of capital. Accordingly, we expect firms with more organization capital are inclined to engage higher quality audit to mitigate the information asymmetry and enhance investors' confidence in information quality. As predict, we find that organization capital is positively associated with the proxies of higher quality audit, Big 4 and industry specialist.

Organization Capital and Corporate Governance

“…My research contributes to the existing literature in the following ways. First, this paper expands the existing literature regarding organization capital in that high organization capital is associated with higher stock returns (Eisfeldt and Papanikolaou 2013), high-quality auditors (Lim and Qin 2019), less-accurate analyst forecasts (Kim et al 2021), and a higher degree of product market competition (Shin and Lee 2023). Although organization capital has been the subject of scholarly studies, little research has been dedicated to understanding the interplay between organization capital and corporate governance.…”

Product market competition and organization capital

“…Research in finance and accounting further proves that organization capital improves stock returns (Eisfeldt and Papanikolaou, 2013;Leung et al, 2018). Other researchers have investigated the effect of organization capital beyond firm performance and value by showing its significant effects on a firm's financial reporting quality and operations, such as analysts' forecasts, cost of capital, auditor choice, and cash holdings (Attig and Ghoul, 2018;Kim et al, 2021;Lim and Qin, 2019;Marwick et al, 2020).…”