Country-Specific Risk and the Cost and Benefit of Audit Quality : Evidence from Israeli Initial Public Offerings in the United States

We examine audit fees and returns to auditor reputation for Israeli entrepreneurs making initial public offerings (IPOs) of equity in U.S. capital markets. We find that the cost of audit quality in terms of audit fees is higher, and the benefit of audit quality in terms of IPO proceeds is lower for a sample of Israeli IPOs matched to a control sample of U.S. IPOs. The results suggest that the higher levels of country-specific risk in Israel are modifying the cost and benefits of audit quality for Israeli entrepreneurs selling securities in the U.S