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The ‘Independence’ of Expert Opinions in Corporate Takeovers: Agreeing With Directors’ Recommendations

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  • Martin Bugeja

Abstract

The impact of non‐audit services on auditor independence has been the recent focus of regulators worldwide. Using expert reports provided in Australian takeovers, this study investigates a context where the audit independence issue is reversed. As approximately a quarter of expert reports are prepared by the target firm's auditor, concerns have been expressed over the independence of the opinion provided. This paper finds that, relative to other experts, there is no difference in the rate at which experts with other business dealings with the target, including the target's auditor, provide an opinion that agrees with that of directors. However, the capital market reaction around the release of the report indicates that reports produced by auditors are viewed as non‐independent.

Suggested Citation

  • Martin Bugeja, 2005. "The ‘Independence’ of Expert Opinions in Corporate Takeovers: Agreeing With Directors’ Recommendations," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9‐10), pages 1861-1885, November.
    • Handle: RePEc:bla:jbfnac:v:32:y:2005:i:9-10:p:1861-1885
    DOI: 10.1111/j.0306-686X.2005.00650.x
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    References listed on IDEAS

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    1. Craswell, Allen & Stokes, Donald J. & Laughton, Janet, 2002. "Auditor independence and fee dependence," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 253-275, June.
    2. Michael Firth, 2002. "Auditor–Provided Consultancy Services and their Associations with Audit Fees and Audit Opinions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5‐6), pages 661-693.
    3. Mark L. DeFond & K. Raghunandan & K.R. Subramanyam, 2002. "Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1247-1274, September.
    4. Michael Firth, 2002. "Auditor-Provided Consultancy Services and their Associations with Audit Fees and Audit Opinions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5&6), pages 661-693.
    5. Raymond Silva Da Rosa & H. Y. Izan & Adam Steinbeck & Terry Walter, 2000. "The Method of Payment Decision in Australian Takeovers: An Investigation of Causes and Effects," Australian Journal of Management, Australian School of Business, vol. 25(1), pages 67-94, June.
    6. Simunic, Da, 1984. "Auditing, Consulting, And Auditor Independence," Journal of Accounting Research, Wiley Blackwell, vol. 22(2), pages 679-702.
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    Cited by:

    1. Lobe, Sebasian & Schenk, Nils-Christian, 2009. "Fairness Opinions and Capital Markets: Evidence from Germany, Switzerland and Austria," ECMI Papers 1596, Centre for European Policy Studies.
    2. Martin Bugeja & Raymond Da Silva Rosa & Terry Walter, 2005. "Expert reports in Australian takeovers: fees and quality," Abacus, Accounting Foundation, University of Sydney, vol. 41(3), pages 307-322, October.
    3. Anna Bedford & Martin Bugeja & Matthew Grosse, 2021. "The choice of financial advisory and independent expert services in takeovers: evidence in a setting where the services are independent," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(2), pages 3649-3683, June.
    4. Bugeja, Martin, 2011. "Takeover premiums and the perception of auditor independence and reputation," The British Accounting Review, Elsevier, vol. 43(4), pages 278-293.
    5. Bugeja, Martin, 2007. "Voluntary use of independent valuation advice by target firm boards in takeovers," Pacific-Basin Finance Journal, Elsevier, vol. 15(4), pages 368-387, September.
    6. Martin Bugeja, 2006. "Independent Expert Valuations in Takeovers: Are They Biased?," Australian Accounting Review, CPA Australia, vol. 16(39), pages 19-24, July.

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