Is the effect of shared auditors driven by shared audit partners? The case of M&As

Abstract

Recent research suggests that shared auditors impact firm outcomes by facilitating information flows across clients and increasing financial statement comparability. This study argues that since client specific knowledge resides with audit partners the effects of shared auditors on corporate outcomes is primarily driven by client engagements with shared audit partners. We test this argument using Australian merger and acquisitions, where there is a longstanding requirement for the disclosure of audit partner details. We find: (i) a positive association between shared audit partners and the likelihood of a friendly acquisition, (ii) a negative association between shared audit partners and takeover premiums, and (iii) a positive (negative) association between shared audit partners and acquirer (target) and total cumulative abnormal returns. We also document that the significant effect of shared auditors is restricted to takeovers with shared audit partners.