The Effect of the Audit Fee on M&A Deals
Asian Tax Journal Vol. 24 No. 4 (2023), pp. 51-72
Abstract
M&A deals can cause significant changes in economic incentives and litigation risk for auditors performing auditing on the acquirer and target company. Audit fee information, which is reasonably determined by the free will of the acquired company and the auditor, is an important measure that can comprehensively evaluate the level risk and effort of the acquired company and the auditor. Based on previous research that a company’s audit fee systematically reflects the overall level risk and audit quality, this study aims to verify whether the audit fee of the acquired company can be used as useful information in M&A market. Therefore, this study using information on the audit fee of the acquired company is evaluated to have differences in research methodology compared to the previous studies that analyzed M&A from the perspective of the acquired company’s audit quality. Empirical findings are summarized as follows：First, as the audit fee of the target company increased, the possibility of successful M&A significantly increased. Second, as the audit fee of the target company increased, the possibility and the percentage of paying in cash as a payment method for M&A significantly decreased. From the point of view of the acquired company, if the audit fee of the acquired company is relatively high, the overall risk level such as the financial reporting risk of the acquired company is evaluated as low, and therefore, this is interpreted as an increase in the tendency of acquiring companies to choose a method for risk sharing with the target company. This study is expected to make a contribution from the perspective of systematically examining the interests of auditors and incentives for behavior change compared to previous studies.
Keywords
- Audit Fee
- M&A
- Information Asymmetry
- Litigation Risk
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