A Look at IPO Auditors

by Christian Chabot on October 15, 2009

The number of service providers claiming to be “#1 in IPOs” is staggering. This includes investment banks, law firms, auditors and consultants. Technology IPOs generate hefty fees for service providers, and this creates a bragging frenzy.

I couldn’t resist looking at the data. Rather than measure firms on the number of IPOs they have been involved with, why not look at IPO performance? This week I’ll focus on the big auditing firms. Here is the data:


The simple question we asked was, “Which auditors are associated with the most successful IPOs?”

The Results

The study shows PWC was the clear leader over the long term. The average 5 year return of PWC IPO clients was 372%. Select lines in the upper visualization to see the performance of specific companies below. You can see that KPMG held the lead at the two year mark.

Like the returns of VC firms, PWC’s over performance in this study was reliant on a few super stars: Parametric, Novell and Cognizant.

What About Market Conditions?

One could argue that it isn’t fair to evaluate returns without factoring in general market conditions each company experienced. For instance, if the technology industry as a whole returned 55% during the first year after a particular IPO (like it did for Verisign) while it fell 40% in the year after another IPO (like it did for OPNET), then it’s unfair to draw conclusions about relative company performance. For this reason, all of the returns in the study have been Nasdaq adjusted. This means that the returns shown above are those in excess of the return on the Nasdaq index.

What Does it Mean?

Nothing about this study implies causality, that is, an auditor may or may not contribute to the success of the IPO. For instance, PWC’s reputation may simply bring the best IPO candidates to them. Or they may have just been lucky.

And really, auditors don’t make claims about the growth potential of a company (though in the future, we may comment on underwriters…) Auditors are responsible for making sure a company’s historical financial results are sound as presented. Nonetheless, this is a modest effort to contribute to truth in advertising.

More about our company sample.

{ 2 comments… read them below or add one }

Ben Stein November 15, 2010 at 8:56 am

Are you going to do a piece on underwriters or have you done it already?

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