Journal of Accounting and Economics
Volume 61, Issue 1, February 2016, Pages 49–76
 

Dan S. Dhaliwala, b, , , Phillip T. Lamoreauxc, , Lubomir P. Litovd, , Jordan B. Neylande, f,
a University of Arizona, United States
b Korea University Business School, Korea
c Arizona State University, United States
d University of Oklahoma, United States
e University of Melbourne, Australia
f Financial Research Network (FIRN), Australia

http://dx.doi.org/10.1016/j.jacceco.2015.01.005

Abstract
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. Our results are robust to controls for alternative explanations and for selection bias in the shared-auditor effect.

Keywords
Auditors; Shared auditors; Mergers and acquisitions; Information asymmetry