Reverse Takeover or Take Under: Auditor Perception of Reverse Takeovers

• In Event: Auditing 2

Abstract

Reverse takeovers (RTs) are unique corporate control transactions in which a privately held company acquires a public company in order to obtain its public listing. Unlike initial public offerings, which require substantial reputational capital investment by an investment bank and a large amount of required disclosure, reverse takeovers can be completed quickly and with little oversight, and therefore have been the source of concern by regulators. In this paper, we will investigate how auditors perceive the risk of reverse takeovers through their pricing of audit fees for firms that go public using an RT versus a traditional initial public offering (IPO) transaction. We examine whether audit fees are higher for RT firms versus a sample of small-cap IPO firms and versus the population of previously public Audit Analytics firms.

Authors

• Kathleen (Kathy) Rankin, Morgan State University

• Yezen H Kannan, Duquesne University

• Kimberly Gleason, University of Pittsburgh