The role of auditors in merger and acquisition completion time

Abstract

Using a sample of 664 merger and acquisition (M&A) transactions and office-level audit data, this study investigates the role of auditors in M&A completion time. We find that having a common auditor for both acquirer and target firms in M&A transactions increases the completion time of such transactions because the exposure to higher litigation and reputational costs outweighs the information-access advantage of common auditors. However, auditors' past experience in M&A transactions helps reduce completion time and costs. These results are robust to having Big N auditors at both ends as well as to various acquirer, target, and deal characteristics.

Post-M&A Performance and Failure: Implications of Time until Deal Completion

“…As a deal is delayed, opportunities to take advantages from the synergies resulting from the merger maybe lost while at the same time direct and indirect cost from the delay would spiral possibly increasing to a point where they could not be offset by the post-M&A performance [25]. Indeed, as indicated in the literature, if a deal is truly beneficial to both parties, then it would be closed quickly [6,16]. Secondly, although it is not directly communicated to the market, the time elapsed until deal completion may be an indicator of a merger's quality, as well as its future performance and/or failure likelihood.…”

“…One of the major purposes of M&A is to take advantage of the synergies created by joining the two entities, and these synergies are time-bound. Thus, as the literature has stressed, the deals need to be closed in a timely fashion [6]. In addition, because executives can engage in adverse behavior while undertaking large acquisitions, many shareholders pressure managers to close their deals quickly [18].…”

“…Chahine, Hasan and Mazboudi report that according to Mergermarket Group, about 64% of respondents prefer to complete M&A deals quickly to capture synergies early, and 36% prefer expanding the due diligence timeline [6]. Thus, we propose and test two complementary hypotheses-the due diligence hypothesis and the overdue hypothesis-to examine whether the time taken until deal completion is an indication predicting the performance and survival of a deal post-completion.…”

Abandonment of mergers and acquisitions: a review and research agenda

“…Acquirers with better shareholder protection and accounting standards improve corporate governance in the target firm, increasing synergy gains (Bris and Cabolis, 2008). Good quality financial accounting decreases the time of due diligence and increases the likelihood of completion (Chahine et al , 2018). Accounting errors and irregularities create information asymmetry and increase abandonment probability (Amel-Zadeh and Zhang, 2015).…”

M&A successes: Breadth, depth, and deal completion time in the US semiconductor industry

“…Although prior studies have evaluated deal completion time from the perspectives of auditing (Chahine et al, 2018) and the financial reporting of the target (Skaife & Wangerin, 2013), there is still a need for research detailing why the time it takes for a company to acquire another company is important, as well as the antecedents that lead to reduced transaction completion time. For example, there has been a continuous pursuit of increasingly advanced technology in the semiconductor industry, where it is critical to quickly develop memory that is more than twice the size of an integrated circuit but that fits within the same area.…”