Specialized Auditors in Strategic Alliances

• In Event: Auditing Opinions and Specialized Auditors

Abstract

We investigate the impact on strategic alliances when auditors have expertise in strategic alliance activities. We hypothesize that auditors with alliance expertise can help partner firms reduce information asymmetry 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. Moreover, information asymmetry is less severe, reporting quality is generally higher, and alliance contract duration longer, among firms in alliances with alliance expert auditors. Effects are more pronounced in alliances where information asymmetry and hold-up problems are more likely to be severe. Overall, our evidence suggests that auditor alliance expertise helps firms increase value in strategic alliance arrangements.

Authors

• Angela K Gore, George Washington University

• Yuan Ji, George Washington University

• Yanfeng Xue, George Washington University