Switching due diligence auditor in Chinese mergers and acquisitions

Xiao Gang Bi, Judy Tang, Rajesh Tharyan

Research output: Journal PublicationArticlepeer-review

3 Citations (Scopus)

Abstract

The routine financial reporting auditor (FR auditor) of an acquiring firm has the advantage of knowing the acquirer very well, however, a large portion of acquirers in China do not use their FR auditor to continue serve as their due diligence auditor (DD auditor) in the takeover process. Using a sample of 818 takeover transactions from 2004 to 2014, we find that the acquiring firms are more likely to appoint a new DD auditor for M&A, instead of using the incumbent one, when the FR auditor is not an industry specialist and the acquiring firms’ financial reporting quality is low. For low financial reporting quality acquiring firms, changing to a new DD auditor can prevent negative market reactions when firms make the M&A announcement, but firms have to pay a higher premium. Our results remain robust when using alternative definitions of industry specialisation and measures of financial reporting quality.

Original languageEnglish
Article number101244
JournalResearch in International Business and Finance
Volume54
DOIs
Publication statusPublished - Dec 2020

Keywords

  • Due diligence auditor
  • Mergers & acquisitions
  • Takeovers
  • Value creation

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Finance

Fingerprint

Dive into the research topics of 'Switching due diligence auditor in Chinese mergers and acquisitions'. Together they form a unique fingerprint.

Cite this