Can auditors mitigate information asymmetry in M&A's? An empirical analysis of the method of payment in belgian transactions
Luypaert, Mathieu Van Caneghem, Tom
Luypaert, Mathieu
Van Caneghem, Tom
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2014
Journal
Auditing: A Journal of Practice and Theory
Book
Publication Volume
33
Publication Issue
1
Publication Begin page
57
Publication End page
91
Publication NUmber of pages
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Abstract
In this paper, we empirically examine the relationship between the external financial statement audit and the method of payment across a sample of Belgian mergers and acquisitions between listed and private firms over the period 1997–2009. We investigate whether a Big N audit (at the target level) reduces the need for a contingent payment resulting from information asymmetry about the target's value. In addition, we analyze whether a Big N audit (at the bidder level) limits incentives for bidders to exploit private information about their own value. Using multivariate ordered probit and binary regression models, we determine that contingent payments are less common when the target is audited by a Big N auditor after controlling for several other deal and firm characteristics. Furthermore, we find that the incentive to use stock payments in periods of stock market overvaluation is lower for acquirers with a Big N auditor. Finally, target shareholders are more likely to accept a contingent offer if the acquirer's financial statements are certified by a Big N auditor.
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Keywords
Accounting & Finance, Mergers & Acquisitions