Acquirers' Abnormal Returns and the Non-Big 4 Auditor Clientele Effect

Posted: 14 Mar 2005

See all articles by Henock Louis

Henock Louis

Pennsylvania State University - Smeal College of Business

Abstract

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

Suggested Citation

Louis, Henock, Acquirers' Abnormal Returns and the Non-Big 4 Auditor Clientele Effect. Journal of Accounting and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=676996

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

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