Common Auditors in M&A Transactions

55 Pages Posted: 24 Jan 2015 Last revised: 4 Feb 2015

See all articles by Ye Cai

Ye Cai

Santa Clara University - Leavey School of Business

Yongtae Kim

Santa Clara University - Leavey School of Business

Jong Chool Park

University of South Florida - School of Accountancy

Hal D. White

Penn State University

Date Written: January 22, 2015

Abstract

We examine merger and acquisition (M&A) transactions in which the acquirer and the target share a common auditor. We predict that a common auditor can help merging firms reduce uncertainty throughout the acquisition process, which allows managers to more efficiently allocate their capital, resulting in higher quality M&As. Consistent with our prediction, we find that deals with common auditors have higher acquisition announcement returns than do non-common-auditor deals. Further, we find that the common-auditor effect is more pronounced for deals with greater pre-acquisition uncertainty and deals involving acquirers and targets that are audited by the same local office of the common auditor. We also find that there is an increased probability of an M&A for firms with a common auditor. Collectively, our evidence suggests that common auditors act as information intermediaries for merging firms, resulting in higher quality acquisitions.

Keywords: Common auditor, Mergers and acquisitions, Uncertainty

JEL Classification: G34, M41, M49

Suggested Citation

Cai, Ye and Kim, Yongtae and Park, Jong Chool and White, Hal D., Common Auditors in M&A Transactions (January 22, 2015). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2553987 or http://dx.doi.org/10.2139/ssrn.2553987

Ye Cai

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Yongtae Kim (Contact Author)

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
(408) 554-4667 (Phone)
(408) 554-2331 (Fax)

Jong Chool Park

University of South Florida - School of Accountancy ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

Hal D. White

Penn State University ( email )

210 Business Building
Smeal College of Business
University Park, PA 16802-3306
United States
814-863-7055 (Phone)

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