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Do key audit matter disclosures about M&A transactions predict future performance?

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Listed:
  • Jessica A. Nylen

    (University of Wisconsin-Madison)

  • Daniel D. Wangerin

    (University of Wisconsin-Madison)

  • Karla M. Zehms

    (University of Wisconsin-Madison)

Abstract

This study examines whether auditor KAM disclosures about M&A transactions predict future performance outcomes. We find that auditors make more M&A KAM disclosures when M&A transactions are larger, involve targets with greater information asymmetry, and are subject to greater overpayment risk. When auditors disclose M&A KAMs in the acquisition year, we find an increased risk of larger goodwill impairments and that the association between acquired goodwill and changes in companies’ subsequent operating performance are significantly lower compared to when auditors do not issue an M&A KAM. We also find that the likelihood of forced CEO turnover is incrementally higher when subsequent operating performance is poor and auditors issue an M&A KAM compared to when they do not. Collectively, our findings suggest that these auditor disclosures reflect uncertainty that predicts weak post-acquisition performance and forced CEO turnover, incremental to other indicators of failed acquisition strategies.

Suggested Citation

  • Jessica A. Nylen & Daniel D. Wangerin & Karla M. Zehms, 2025. "Do key audit matter disclosures about M&A transactions predict future performance?," Review of Accounting Studies, Springer, vol. 30(3), pages 2264-2311, September.
    • Handle: RePEc:spr:reaccs:v:30:y:2025:i:3:d:10.1007_s11142-025-09896-2
    DOI: 10.1007/s11142-025-09896-2
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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