SEARCH

SEARCH BY CITATION

Keywords:

  • Audit quality;
  • Cost of equity capital;
  • Multiple-segments firms;
  • Information asymmetry

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.