Acquirers' Abnormal Returns and the Non-Big 4 Auditor Clientele Effect
Posted: 14 Mar 2005
I analyze the effect of auditor choice on acquirers' values around merger announcements and the factors affecting the interaction between auditor size and the market reaction to merger announcements. I find that acquirers audited by non-Big 4 accounting firms outperform those audited by Big 4 firms. This effect is more pronounced when the targets are privately held and when the likelihood of the auditors playing a prominent advisory role increases. While the largest auditing firms are usually assumed to offer superior services, the study suggests that smaller firms have a comparative advantage in assisting their clients in merger transactions.
Keywords: Merger, Auditor size, Auditor clientele, Non-audit services, Private target
JEL Classification: M49, G34, G12
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