Auditor choice in privatized firms: Empirical evidence on the role of state and foreign owners

We rely on a unique dataset of 176 privatizations from 32 countries to extend recent research on the link between the political economy and accounting transparency by examining the importance of shareholders’ proportionate holdings to auditor choice. Consistent with our predictions on shareholders’ diverging interests in high-quality financial reporting that manifests in auditor choice, we report strong, robust evidence that privatized firms worldwide become less (more) likely to appoint a Big Four auditor with the extent of state (foreign) ownership. Moreover, we find that these relations between shareholders’ equity stakes and auditor choice strengthen when country-level governance institutions are weaker.