Shared Auditors in Mergers and Acquisitions
Dan S. Dhaliwal
University of Arizona - Department of Accounting
Phillip T. Lamoreaux
Arizona State University; University of Arizona - Department of Accounting
Lubomir P. Litov
University of Arizona - Department of Finance; University of Pennsylvania - Wharton Financial Institutions Center
The University of Melbourne; Financial Research Network (FIRN)
April 1, 2013
We examine the effect of shared auditors, defined as audit firms that provide audit services to both target and acquirer prior to an acquisition, on transaction outcomes. We find that shared auditors are frequently observed — in a quarter of all public acquisitions — and are associated with significantly lower deal premiums, lower target event returns, higher acquirer event returns, and higher deal completion rates. Moreover, targets are likelier 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 mitigated to an extent after the adoption of the Sarbanes-Oxley Act. Overall, our results suggest that the bidder benefits from sharing the same auditor with the target, in part because of the lower costs to learn about it.
Number of Pages in PDF File: 49
Keywords: auditors, shared auditors, mergers and acquisitions, information asymmetry
JEL Classification: G34, M41, M49working papers series
Date posted: April 20, 2013 ; Last revised: June 28, 2013
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