Specialized Auditors in Strategic Alliances

• In Event: Audit Quality, Opinions and Specialization

Abstract

We investigate the impact on strategic alliance value when auditors have expertise in strategic alliance activities. We hypothesize that auditors with alliance expertise can help partner firms reduce information uncertainty and hold-up problems endemic to alliance relationships. Our measures of auditor expertise include general alliance, alliance type (e.g. technology alliances), and deal-specific (both alliance partners share the same auditor) expertise. Primary findings document that announcement date abnormal returns are higher among alliance partner firms served by an alliance expert auditor, after controlling for Big N and auditor industry expertise. Effects are more pronounced in alliances where information uncertainty and hold-up problems are more likely to be severe. Moreover, direct measures suggest that information uncertainty is less severe, accruals quality is generally higher, and alliance contract duration longer, among firms in alliances with alliance expert auditors. Overall, our evidence suggests that auditors with alliance expertise help firms increase value in strategic alliance arrangements.
 

Authors

• Angela K Gore, George Washington University

• Yuan Ji, Hong Kong Polytechnic University

• Yanfeng Xue, The George Washington University