The Relationship between Auditor Size and Institutional Investors

Institutional investors have large holdings, so they have more influence over management. They demand high quality financial information and prefer audits conducted by large audit firms because they perceive that these firms, on average, provide relatively higher audit quality. This study investigated the relation between auditor size and level of institutional ownership. In this paper, auditor size is dependent variable and dichotomous variable. This variable is set equal to one if the firm is audited by big audit firms, otherwise zero. The test based on a logistic regression for the companies listed in Tehran Stock Exchange during 2001-2007. Our findings support this idea that institutional ownership is positively associated with the auditor size and show that institutional investors monitor actively over management.