Valuation of Takeover Targets and Auditor Quality

This study investigates whether the market's perception of auditor quality makes a difference to the market value of a firm using a sample of 1 915 takeover offers in the USA over the period 1990 to 2005. The study finds, as hypothesised, that the takeover process makes a smaller correction to the market price of the target when it has a Big 4 auditor suggesting that less private information becomes available. We find no empirical evidence for the auditor switch effect, which is an alternative explanation for the lower CARs for Big 4 targets