Shared Auditors in Mergers and Acquisitions

Dan S. Dhaliwal, Phillip T. Lamoreaux, Lubomir P. Litov and Jordan B. Neyland
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Dan S. Dhaliwal: University of AZ
Phillip T. Lamoreaux: University of AZ
Lubomir P. Litov: University of AZ and University of PA
Jordan B. Neyland: University of Melbourne and Financial Research Network

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We examine the effect of shared auditors, defined as audit firms that provide audit services to both target and acquirer prior to an acquisition, on transaction outcomes. We find that shared auditors are frequently observed-in a quarter of all public acquisitions-and are associated with significantly lower deal premiums, lower target event returns, higher acquirer event returns, and higher deal completion rates. Moreover, targets are likelier to receive a bid from a firm that has the same auditor. These results are more pronounced when targets and acquirers are audited by the same office of the audit firm and are mitigated to an extent after the adoption of the Sarbanes-Oxley Act. Overall, our results suggest that the bidder benefits from sharing the same auditor with the target, in part because of the lower costs to learn about it.

JEL-codes: G34 M41 M49 (search for similar items in EconPapers)
Date: 2013-04
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