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Auditor Effect on Merger and Acquisition Outcomes: Evidence from Targets' Auditor-Provided Nonaudit Services
|Title:||Auditor Effect on Merger and Acquisition Outcomes: Evidence from Targets' Auditor-Provided Nonaudit Services|
Nonaudit Services Fees
|Date Issued:||16 Aug 2020|
|Abstract:||We study the role of auditors in the market for corporate control by examining the relation between nonaudit services (NAS)-related auditor independence and acquisition outcomes. We find that a target's NAS purchases from its incumbent auditor are associated with a lower deal premium, more time and effort taken for due diligence verification, and a higher likelihood of using stock as a method of payment. These relations are more pronounced in situations where the target is more incentivized to manage earnings and the auditor face less risk to acquiesce to client pressure. We also find a negative relation between the target's NAS purchases and the actual deal quality measured by post-acquisition divestiture and goodwill impairment. Overall, our evidence indicates that audit quality affects multiple aspects of an acquisition deal and that the NAS provision compromises auditor independence.|
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