Association between Big 4 auditor choice and cost of equity capital for multiple‐segment firms. (21st January 2013) - Choi, Jong‐Hag
Abstract Prior studies document a negative association between Big 4 auditor choice and the implied cost of equity capital, suggesting that Big 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 Big 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 Big 4 auditors in reducing the cost of equity capital becomes more significant when greater IA exists.