Expert valuation reports in Australian takeovers: Quality, fees and auditor independence.
Martin Bugeja
University of Sydney
Abstract: Target firms in Australian takeovers are required to commission the preparation of an independent expert report in various circumstances. Many of these reports are produced by experts with other dealings with the target, with 25% prepared by the target firms current auditor. It is alleged that such experts produce their reports below cost and cross-subsidise the reports with other income received from the target. This study tests this assertion by developing an independent expert fee model. This model is also used to test for a quality expert fee premium. The results indicate that experts that are also a non-Big 6/5 auditor of the target charge significantly lower fees and provide reports of significantly shorter length. Providing expert report length is related to report quality then the quality of expert reports prepared by auditors is questionable. The results also show that the top 2 ranked experts earn a fee premium.
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