Are Audit Fees Higher for Reverse Merger Firms? Empirical Evidence from U.S. Capital Markets

• In Event: Breakfast and Research Forum
  In Roundtable Session: Table 3: Auditing Reverse Merger Firms

Abstract

This study examines whether audit fees are higher for U.S. based reverse merger firms and their earnings management behavior. Results of the study provide support for the hypotheses that firms entering public equity markets via reverse mergers are associated with higher audit fees and abnormal audit fees. Furthermore, the study evaluates whether reverse merger firms engage in real earnings management in addition to or as opposed to accruals earnings management, and finds evidence that support a greater use of both forms of earnings management for U.S. based reverse merger firms. We extend on the recent literature by focusing on reverse mergers within the United States and considering measures of abnormal audit fees and earnings management.

Authors

• Yu Chen, Texas A&M International University

• Jared Scott Soileau, Louisiana State University