The insignificance of auditor selection in the valuation of private companies within the public acquisition market

Abstract

Previous research has set a firm position on quality and credibility of accounting information in the audit markets. Firth and Smith (1992), Firth and Liau-Tan (1998) and DeFranco et al. (2010) observed that brand name auditors provide higher assurance and credibility to the audited financial statements of companies with little or no trading history. However, in light of this reputable research, the established view from major professional accounting groups is that audits are the same regardless of the audit firm implying auditing homogeneity (Niskanen et al., 2010). The results from this analysis indicated that the price of a privately held company did not vary as a function of the audit firm performing the audit. Two analyses were performed comparing private companies audited by the largest ten accounting firms vs. all others, and Big 5(4) firms opposed to the remaining.