Do Acquirers Retain or Attract Customers Following Mergers and Acquisitions? Evidence from the Audit Industry

61 Pages Posted: 15 Sep 2020

See all articles by Paul Mason

Paul Mason

Baylor University

Steven Utke

University of Connecticut - Department of Accounting

Date Written: August 3, 2020

Abstract

We use a unique setting of an auditor’s acquisition of another auditor to provide new insight into customer responses to mergers broadly, and to study several audit market dynamics. Unlike most merger settings that primarily allow examination of the merging firms and their rivals, this setting also provides data on these firms’ customers (“clients”). We find that the number of clients switching to the acquiring auditor increases following the merger, however we find that this is more than offset by an increase in the number of clients switching from the acquiring auditor. We find that a poor fit between the acquiring (large) auditor and the acquired clients leads to the loss of many (small) acquired clients. We also find evidence of unintended consequences to the acquiring firm in the form of the loss of existing clients. We find little evidence that the merger generates a sustained gain in market share or significant increase in aggregate fees. Our study is among the first to document the client attributes that lead to exit from a merged firm. Specific to the audit market, our study casts doubt on the likelihood that auditors intentionally develop or obtain industry specialization which then attracts clients, consistent with recent research suggesting that auditors instead fall backwards into specialization after serving large industry clients over time.

Keywords: Mergers and Acquisitions, Professional Services Firms, Auditor Market Share, Industry Specialization, Auditor Changes, Private Funds, Hedge Funds, Private Equity, Venture Capital

JEL Classification: M42

Suggested Citation

Mason, Paul and Utke, Steven, Do Acquirers Retain or Attract Customers Following Mergers and Acquisitions? Evidence from the Audit Industry (August 3, 2020). Available at SSRN: https://ssrn.com/abstract=3666157 or http://dx.doi.org/10.2139/ssrn.3666157

Paul Mason

Baylor University ( email )

Waco, TX 76798
United States

Steven Utke (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

HOME PAGE: http://www.steveutkedata.com/

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