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.