Switching due diligence auditor in Chinese mergers and acquisitions

XiaoGang Bi, Judy Tang and Rajesh Tharyan ()

Research in International Business and Finance, 2020, vol. 54, issue C

Abstract: The routine financial reporting auditor (FR auditor) of an acquiring firm has the advantage of knowing the acquirer very well, however, a large portion of acquirers in China do not use their FR auditor to continue serve as their due diligence auditor (DD auditor) in the takeover process. Using a sample of 818 takeover transactions from 2004 to 2014, we find that the acquiring firms are more likely to appoint a new DD auditor for M&A, instead of using the incumbent one, when the FR auditor is not an industry specialist and the acquiring firms’ financial reporting quality is low. For low financial reporting quality acquiring firms, changing to a new DD auditor can prevent negative market reactions when firms make the M&A announcement, but firms have to pay a higher premium. Our results remain robust when using alternative definitions of industry specialisation and measures of financial reporting quality.

Keywords: Due diligence auditor; Mergers & acquisitions; Takeovers; Value creation (search for similar items in EconPapers)
JEL-codes: G24 G34 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:54:y:2020:i:c:s0275531919310372

DOI: 10.1016/j.ribaf.2020.101244

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