Accounting Firms in the European M&A Advisory Market

Abstract

Building on the knowledge-based view of the resource-based theory, we propose that accounting firms leverage the industry expertise acquired from the audits of the targets’ industries to produce fairer target valuations on merger and acquisitions (M&As). The accounting expertise competitive advantage explains why bidders choose accounting firms, rather than investment banks, to advise on transactions where the likelihood of overpaying for a target is high. We document that for such deals, acquirer announcement returns are higher and offer premia are lower if the bidders are advised by accounting firms that are audit specialists in the targets’ industries. Our results explain why accounting firms are listed among top ten M&A financial advisors in the European Thomson Reuters and Mergermarket league tables.

Keywords: accounting firms, financial advisors, hard-to-value targets, mergers and acquisitions, knowledge-based view, resource-based theory

JEL Classification: G34, M41, M49