Abstract
This paper examines the association between bid-ask spread, a market based measure of information asymmetry and auditor reputation. Based on a sample of 42 firms over a period from 2000 to 2006, we find that information asymmetry is negatively related to the employment of Big auditor after controlling the stock exchange, size, returns of the equity and volatility. Auditor Big seems to influence information asymmetry in regard to its impact on the bid-ask spread. Our results support that firms with audited by an auditor Big have lower bid-ask spreads and lower adverse selection spread components. These findings are consistent with a market that perceives audit quality increasing with employment of Big auditor.
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