Shared Auditors in Mergers and Acquisitions
Dan S. Dhaliwal
University of Arizona - Department of Accounting
Phillip T. Lamoreaux
Arizona State University
Lubomir P. Litov
University of Arizona - Department of Finance; University of Pennsylvania - Wharton Financial Institutions Center
The University of Melbourne; Financial Research Network (FIRN)
March 24, 2014
We examine the effect of shared auditors, defined as audit firms that provide audit services to both a target and acquirer firm prior to an acquisition, on transaction outcomes. Shared auditors are observed in nearly a quarter of all public acquisitions and are associated with significantly lower deal premiums, lower target event returns, higher bidder event returns, and higher deal completion rates. Moreover, targets are more likely to receive a bid from a firm that has the same auditor. These results are more pronounced when targets and acquirers are audited by the same office of the audit firm and are partially mitigated after the adoption of the Sarbanes-Oxley Act. Overall, our results suggest that the bidder benefits from sharing the same auditor with the target and are robust to controlling for alternative explanations and the selection bias in the shared-auditor effects.
Number of Pages in PDF File: 57
Keywords: auditors, shared auditors, mergers and acquisitions, information asymmetry
JEL Classification: G34, M41, M49working papers series
Date posted: April 20, 2013 ; Last revised: March 28, 2014
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