PCAOB International Inspections and Merger and Acquisition Outcomes

65 Pages Posted: 20 Apr 2020

See all articles by Yongtae Kim

Yongtae Kim

Santa Clara University - Leavey School of Business

Lixin (Nancy) Su

Hong Kong Polytechnic University - School of Accounting and Finance

Gaoguang Zhou

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law

Xindong (Kevin) Zhu

City University of Hong Kong

Date Written: March 26, 2020

Abstract

This study examines how PCAOB international inspections of non-U.S. auditors affect international Merger and Acquisition (M&A) outcomes. We find that clients of inspected auditors are more likely to become acquisition targets after the public disclosure of auditor’s inspection report. We also find that deal completion is more likely and deal announcement returns are higher if deals involve targets with auditors for which inspection reports are available. Engagement deficiencies and unremediated quality control deficiencies identified in inspection reports weaken the positive effect of PCAOB oversight on M&A outcomes. Collectively, our results suggest that PCAOB oversight reduces information uncertainty in M&A deals.

Keywords: PCAOB International Inspection, Audit Quality, Merger and Acquisition

JEL Classification: G34; M41, M49

Suggested Citation

Kim, Yongtae and Su, Lixin (Nancy) and Zhou, Gaoguang and Zhu, Xindong (Kevin), PCAOB International Inspections and Merger and Acquisition Outcomes (March 26, 2020). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3562051

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)

Lixin (Nancy) Su

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
852-2766-7033 (Phone)
852-2330-9845 (Fax)

Gaoguang Zhou

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law ( email )

Kowloon Tong, Kowloon
Hong Kong

Xindong (Kevin) Zhu

City University of Hong Kong ( email )

Kowloon
Hong Kong

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