PCAOB international inspections and Merger and Acquisition outcomes

This study examines how PCAOB international inspections of non-U.S. auditors affect international Merger and Acquisition (M&A) outcomes. We find that clients of inspected auditors are more likely to become acquisition targets after the public disclosure of auditor's inspection report. We also find that deal completion is more likely and deal announcement returns are higher if deals involve targets with auditors for which inspection reports are available. Engagement deficiencies and unremediated quality control deficiencies identified in inspection reports weaken the positive effect of PCAOB oversight on M&A outcomes. Collectively, our results suggest that PCAOB oversight reduces information uncertainty in M&A deals. •We examine how PCAOB international inspections of non-U.S. auditors affect international merger and acquisition outcomes.•Clients of inspected auditors are more likely to become acquisition targets after the disclosure of the inspection report.•Deal completion is more likely if deals involve targets with auditors for which inspection reports are available.•Deal announcement returns are higher if deals involve targets with auditors for which inspection reports are available.•Engagement deficiencies and unremediated quality control deficiencies weaken the positive effects of PCAOB oversight.