Investigating the Moderating Effect of Auditing Quality on the Relationship between Financial Reporting Quality and Initial Public Offerings (IPOs) Underpricing

The purpose of this study is to investigate the moderating effect of auditing quality on the relationship between financial reporting quality and initial public offerings (IPOs) underpricing of stocks. The population of this study is the companies listed on the Tehran Stock Exchange (TSE) and OTC of Iran. The statistical sample consists of 230 companies in the period of 18 years, from 2001 to 2019. Data were analyzed using multivariate regression and Eviews software. The results showed that on average, 25% of the initial public offering underpricing of stocks occurs in the Iranian capital market. In addition, the findings of the regression analysis using the Eviews software indicated that the financial reporting quality has a negative and significant effect on the initial public offerings underpricing of stocks. In other words, the high financial reporting quality prevents the initial public offering underpricing. It was also found that audit quality (in terms of the type of auditor's opinions) enhances the relationship between financial reporting quality and the initial public offerings underpricing of stocks. However, the size of the audit firm and the auditor's tenure do not moderate the relationship. In general, study findings suggest that buying stocks in the initial public offering is highly attractive. Auditors can also improve audit quality with greater rigor and modified opinions. In this way, they strengthen the inverse effect of the quality of financial reporting on lower pricing than the actual initial public offering of stocks.