Impact of board ownership, CEO-Chair duality and foreign equity participation on auditor quality choice of IPO companies Evidence from an emerging market A.K.M. Waresul Karim School of Economics and Business Administration, Saint Mary’s College of California, Moraga, California, USA Tony van Zijl School of Accounting and Commercial Law, Victoria University of Wellington, Wellington, New Zealand, and Sabur Mollah School of Business, Stockholm University, Stockholm, Sweden Abstract Purpose – The purpose of this paper is to examine the impact of corporate governance on auditor quality choice by IPO companies in an emerging market setting. It seeks to identify whether efficiency or opportunism is the driving force behind the choice of auditors in Bangladeshi firms going public. We try to see whether ownership concentration in the hands of a owner-CEO wins over foreign shareholders in the contest of ensuring financial reporting quality. Design/methodology/approach – Multivariate analysis has been carried out on all IPOs made during 1990 to 2005 whose financial statements were available. Logistic regression tool has been used to identify client’s corporate governance attributes affect their choice of auditors. In total, three corporate governance attributes – CEO-Chair duality, retained ownership, and foreign equity participation – were used to test the impact of ownership structure on auditor choice. Findings – Our findings from logistic regression suggest that CEO-Chair duality and the degree of foreign equity participation are significant determinants of auditor choice while proportion of board ownership is not. In addition, issuer size and whether the issuer is a green field operation also influence auditor choice while the length of a firm’s operating history does not seem to matter. The findings support agency theory prediction that (at least one category of) principals (foreign shareholders in this case), are likely to trade-off higher monitoring costs (of hiring a higher quality auditor) with agency costs arising from asymmetric information, primarily borne by absentee owners. Originality/value – The work is based on empirical data directly from company financial statements. It uses audited financial statements and makes objective analysis of auditor choice dynamics in a frontier market that demonstrated significant growth of IPO activity in recent years. Keywords Auditing, Auditors, Accounting, Bangladesh, Initial public offering, Corporate governance, Auditor choice Paper type Research paper The current issue and full text archive of this journal is available at www.emeraldinsight.com/1834-7649.htm JEL classification – G32, G15 Received 15 July 2011 Revised 12 January 2012 17 March 2012 8 June 2012 Accepted 17 July 2012 International Journal of Accounting and Information Management Vol. 21 No. 2, 2013 pp. 148-169 q Emerald Group Publishing Limited 1834-7649 DOI 10.1108/18347641311312285 IJAIM 21,2 148