The routine financial reporting auditor (FR auditor) of an acquiring firm has the advantage of knowing the acquirer very well,
however, a large portion of acquirers in China do not use their FR auditor to continue serve as their due diligence auditor (DD
auditor) in the takeover process. Using a sample of 818 takeover transactions ...
The routine financial reporting auditor (FR auditor) of an acquiring firm has the advantage of knowing the acquirer very well,
however, a large portion of acquirers in China do not use their FR auditor to continue serve as their due diligence auditor (DD
auditor) in the takeover process. Using a sample of 818 takeover transactions from 2004 to 2014, we find that the acquiring firms are
more likely to appoint a new DD auditor for M&A, instead of using the incumbent one, when the FR auditor is not an industry
specialist and the acquiring firms’ financial reporting quality is low. For low financial reporting quality acquiring firms, changing to a
new DD auditor can prevent negative market reactions when firms make the M&A announcement, but firms have to pay a higher
premium. Our results remain robust when using alternative definitions of industry specialisation and measures of financial reporting
quality