Thursday, February 12, 2015

Shared Auditors in Mergers and Acquisitions

What happens when a target and bidding firm share the same auditor?  According to an interesting study by Dhaliwal, Lamoreaux, Litov, and Neyland, targets lose.  Of course, this is a characteristic of the sample and not true for every observation, but certainly something that deserves thinking about.  The abstract is below:

Shared Auditors in Mergers and Acquisitions


We examine the impact of shared auditors, defined as audit firms that provide audit services to a target and its acquirer firm prior to an acquisition, on transaction outcomes. We find shared auditors are observed in nearly a quarter of all public acquisitions and targets are more likely to receive a bid from a firm that has the same auditor. Moreover, these shared auditor deals are associated with significantly lower deal premiums, lower target event returns, higher bidder event returns, and higher deal completion rates. These results are driven by bids in which targets and acquirers share the same practice office of an audit firm and in which the target is small. Overall, our evidence suggests that bidders benefit from sharing an auditor with the target, and that these results are robust to controls for alternative explanations and for selection bias in the shared-auditor effect.

The complete paper, can be downloaded here.

All the best,


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