We examine the effect of shared auditors, defined as
audit firms that provide audit services to both target
and acquirer prior to an acquisition, on transaction
outcomes. We find that shared auditors are frequently
observed—in a quarter of all public acquisitions—and are
associated with significantly lower deal premiums, lower
target event returns, higher acquirer event returns, and
higher deal completion rates. Moreover, targets are
likelier to receive a bid from a firm that has the same
auditor. These results are more pronounced when targets
and acquirers are audited by the same office of the
audit firm and are mitigated to an extent after the
adoption of the Sarbanes-Oxley Act. Overall, our results
suggest that the bidder benefits from sharing the same
auditor with the target, in part because of the lower
costs to learn about it. pdf 2013
