Santa Clara University

Join Ye Cai and Yongtae as they discuss their join paper "Common Auditors and Gains from M&A Transactions" 

Abstract

We examine M&A transactions where the acquirer and the target share the common auditor. We find that acquirers experience more favorable announcement returns in deals with common auditors. Our results suggest that both the acquirer?s ability to buy the target at a lower price and greater acquisition synergy as well as greater deal profitability contribute to acquirer shareholders? wealth gains from deals with common auditors. In addition, we find that common auditors have incentives to favor acquirers even at the expense of target shareholders.  Subsequent to acquisitions, acquirers reward auditors who provide the common auditor link by awarding financial statement audits. The findings in our study improve our understanding of the role and incentives of auditors in M&A transactions.