The Spillover Effect of Audit Firm Office Acquisition on the Audit Quality of the Existing Client Base

What is it about?

It explores whether office M&A affects post-acquisition office audit quality for the existing client base of the acquiring offices. We capitalize on a unique circumstance: the 2002 acquisition of Arthur Andersen (Andersen) office practices by other audit firm offices. This setting involves a set of offices in each of the remaining large international audit firms that acquired entire Andersen local practices (treatment group) and a set of offices that did not acquire Andersen practices (control group). We find robust evidence of higher audit quality post-acquisition among the audits of existing clients of the acquiring offices. The findings suggest that practitioner and scholarly literature on audit practice mergers should consider the impact of audit firm M&A on the existing client base as well as the acquired clients.

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