PCAOB International Inspections and Merger and Acquisition outcomes

Yongtae KIM, Lixin Nancy SU, Gaoguang, Stephen ZHOU, Xindong (Kevin) ZHU

Research output: Other Conference ContributionsConference Paper (other)Other Conference Paperpeer-review

Abstract

In this study, we examine how Public Company Accounting Oversight Board (PCAOB) international inspections on non-U.S. auditors affect international Merger and Acquisition (M&A) outcomes. Using a difference-in-differences research design, we find that following the PCAOB inspections, clients of inspected auditors are more likely to become acquisition targets and if they become targets, the likelihood of deal completion increases. Acquirers also pay higher premiums to targets with PCAOB-inspected auditors, and the deal quality is higher for M&As involving targets with PCAOB-inspected auditors than those with non-inspected auditors. The effect of PCAOB inspections on M&A outcomes is more pronounced for targets with greater information risk and for those located in countries with weaker legal institutions. Collectively, our results suggest that PCAOB inspections improve the credibility of audited financial statements, reduce information risk in M&A deals, and enhance capital allocation in global markets. Our study provides novel evidence on the real economic benefits of the PCAOB international inspection program.
Original languageEnglish
Publication statusPublished - 30 May 2018
Externally publishedYes
Event41st Annual Congress of the European Accounting Association - Bocconi University, Milano, Italy
Duration: 30 May 20181 Jun 2018
http://eaa2018.eaacongress.org/r/home

Conference

Conference41st Annual Congress of the European Accounting Association
Abbreviated titleEAA 2018
CountryItaly
CityMilano
Period30/05/181/06/18
Internet address

Fingerprint

Mergers and acquisitions
Inspection
Oversight
Auditors
Information risk
Credibility
Capital allocation
Legal institutions
Financial statements
Economic benefits
Difference-in-differences
International mergers and acquisitions
Global market
Premium
Research design

Cite this

KIM, Y., SU, L. N., ZHOU, G. S., & ZHU, X. K. (2018). PCAOB International Inspections and Merger and Acquisition outcomes. Paper presented at 41st Annual Congress of the European Accounting Association, Milano, Italy.
KIM, Yongtae ; SU, Lixin Nancy ; ZHOU, Gaoguang, Stephen ; ZHU, Xindong (Kevin). / PCAOB International Inspections and Merger and Acquisition outcomes. Paper presented at 41st Annual Congress of the European Accounting Association, Milano, Italy.
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KIM, Y, SU, LN, ZHOU, GS & ZHU, XK 2018, 'PCAOB International Inspections and Merger and Acquisition outcomes' Paper presented at 41st Annual Congress of the European Accounting Association, Milano, Italy, 30/05/18 - 1/06/18, .

PCAOB International Inspections and Merger and Acquisition outcomes. / KIM, Yongtae; SU, Lixin Nancy; ZHOU, Gaoguang, Stephen; ZHU, Xindong (Kevin).

2018. Paper presented at 41st Annual Congress of the European Accounting Association, Milano, Italy.

Research output: Other Conference ContributionsConference Paper (other)Other Conference Paperpeer-review

TY - CONF

T1 - PCAOB International Inspections and Merger and Acquisition outcomes

AU - KIM, Yongtae

AU - SU, Lixin Nancy

AU - ZHOU, Gaoguang, Stephen

AU - ZHU, Xindong (Kevin)

PY - 2018/5/30

Y1 - 2018/5/30

N2 - In this study, we examine how Public Company Accounting Oversight Board (PCAOB) international inspections on non-U.S. auditors affect international Merger and Acquisition (M&A) outcomes. Using a difference-in-differences research design, we find that following the PCAOB inspections, clients of inspected auditors are more likely to become acquisition targets and if they become targets, the likelihood of deal completion increases. Acquirers also pay higher premiums to targets with PCAOB-inspected auditors, and the deal quality is higher for M&As involving targets with PCAOB-inspected auditors than those with non-inspected auditors. The effect of PCAOB inspections on M&A outcomes is more pronounced for targets with greater information risk and for those located in countries with weaker legal institutions. Collectively, our results suggest that PCAOB inspections improve the credibility of audited financial statements, reduce information risk in M&A deals, and enhance capital allocation in global markets. Our study provides novel evidence on the real economic benefits of the PCAOB international inspection program.

AB - In this study, we examine how Public Company Accounting Oversight Board (PCAOB) international inspections on non-U.S. auditors affect international Merger and Acquisition (M&A) outcomes. Using a difference-in-differences research design, we find that following the PCAOB inspections, clients of inspected auditors are more likely to become acquisition targets and if they become targets, the likelihood of deal completion increases. Acquirers also pay higher premiums to targets with PCAOB-inspected auditors, and the deal quality is higher for M&As involving targets with PCAOB-inspected auditors than those with non-inspected auditors. The effect of PCAOB inspections on M&A outcomes is more pronounced for targets with greater information risk and for those located in countries with weaker legal institutions. Collectively, our results suggest that PCAOB inspections improve the credibility of audited financial statements, reduce information risk in M&A deals, and enhance capital allocation in global markets. Our study provides novel evidence on the real economic benefits of the PCAOB international inspection program.

M3 - Conference Paper (other)

ER -

KIM Y, SU LN, ZHOU GS, ZHU XK. PCAOB International Inspections and Merger and Acquisition outcomes. 2018. Paper presented at 41st Annual Congress of the European Accounting Association, Milano, Italy.