Common auditors in M&A transactions

Ye Cai, Yongtae Kim, Jong Chool Park, Hal D. White

Research output: Contribution to journalArticle

18 Citations (Scopus)

Abstract

We examine merger and acquisition (M&A) transactions in which the acquirer and the target share a common auditor. We predict that a common auditor can help merging firms reduce uncertainty throughout the acquisition process, which allows managers to more efficiently allocate their capital, resulting in higher quality M&As. Consistent with our prediction, we find that deals with common auditors have higher acquisition announcement returns than do non-common-auditor deals. Further, we find that the common-auditor effect is more pronounced for deals with greater pre-acquisition uncertainty and deals involving acquirers and targets that are audited by the same local office of the common auditor. We also find that there is an increased probability of an M&A for firms with a common auditor. Collectively, our evidence suggests that common auditors act as information intermediaries for merging firms, resulting in higher quality acquisitions.

Original languageEnglish (US)
Pages (from-to)77-99
Number of pages23
JournalJournal of Accounting and Economics
Volume61
Issue number1
DOIs
StatePublished - Feb 1 2016

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Auditors
Merging
Uncertainty
Prediction
Intermediaries
Mergers and acquisitions
Announcement returns
Managers

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Cai, Ye ; Kim, Yongtae ; Park, Jong Chool ; White, Hal D. / Common auditors in M&A transactions. In: Journal of Accounting and Economics. 2016 ; Vol. 61, No. 1. pp. 77-99.
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Common auditors in M&A transactions. / Cai, Ye; Kim, Yongtae; Park, Jong Chool; White, Hal D.

In: Journal of Accounting and Economics, Vol. 61, No. 1, 01.02.2016, p. 77-99.

Research output: Contribution to journalArticle

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