Anand Jha accepted for publication in the Journal of Financial Stability
Anand Jha, Professor of Finance and Chair of the Department of Finance at the Mike Ilitch School of Business, had his paper, “Strategic alliances and shared auditors,” accepted for publication in the Journal of Financial Stability. This paper was co-authored with Mufaddal Baxamusa from the University of St. Thomas and K.K. Raman from the University of Texas-San Antonio. This paper examines strategic alliances, finding that the shared auditor effect increases CARs for companies with the same partner. Auditors add shareholder value by building trust and mitigating relational risk by facilitating non-financial information sharing.
Abstract:
Strategic alliances are voluntary corporate arrangements for mutual benefit. Although alliances are common as an alternative to M&As, they require cooperation between alliance partners who continue to operate as independent companies. Thus, relational risk—the probability and consequences of unsatisfactory cooperation or opportunistic behavior—is inherent in alliances and a major determinant of alliance success. In this paper, we examine and find that alliance announcement CARs are higher for companies sharing the same auditor with their alliance partner. Further, our findings suggest that the shared auditor effect is stronger for alliances where potential relational risk between alliance partners is greater. Our findings hold when we use “withdrawn” (i.e., the withdrawal of an announced alliance before its start date) as an alternative, albeit inverse, measure of alliance success. Collectively, we provide novel evidence which suggests that auditors add shareholder value by playing a matchmaking role in alliance formation, building inter-company trust and mitigating relational risk by facilitating the sharing of non-financial information between potential alliance partners among their audit clients.
-Jannet Hurtado-Blanco
