Sneaking in the back door? An evaluation of reverse mergers and IPOs

Pollard, Troy

doi:10.1007/s11156-015-0502-8

Cited by 8 publications

(9 citation statements)

References 104 publications

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“…We identify reverse merger firms from January 1, 2001 to April 30, 2015, using a proprietary database from DealFlow Media. Our data source is consistent with the prior reverse merger literature (Givoly, Hahn, and Lourie ; Pollard ; Lee et al. ; Asquith and Rock ).…”

Section: Sample Selectionsupporting

confidence: 90%

“…Consistent with much of the prior literature (Givoly et al. ; Pollard ; Lee et al. ), many of these transactions ( n = 1,549) do not have sufficient audit fee or financial statement data.…”

Section: Sample Selectionsupporting

confidence: 57%

“…The shell company issues a large number of shares to the shareholders of the private company, making them the majority owners of the shell company. Management of the previously private operating company, with all its operations, remains, and the combined entity continues to report under the registration of the shell company” (Pollard , 305–6). The reverse merger avoids the formal IPO process (i.e., registering and selling its stock to the public), including the use of underwriters and all the attendant regulations and auditor costs, such as obtaining a comfort letter.…”

Section: Prior Researchmentioning

confidence: 99%

“…During the decade 2002–2011, the number of completed reverse mergers exceeded the number of IPOs for all but two years. The average number of reverse mergers and IPOs completed per year over this time period was 181 and 102, respectively (Ritter ; Pollard ).…”

Section: Prior Researchmentioning

confidence: 99%

“…The shareholders of the private company receive a substantial majority of the shares of the public company and control of its board of directors. The private company's management team is often retained to manage the combined entity (Pollard ; Lee, Li, and Zhang ). Reverse mergers are less costly than IPOs and require less time to execute (Asquith and Rock ).…”

Section: Introductionmentioning

confidence: 99%

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The Impact of Litigation Risk on Auditor Pricing Behavior: Evidence From Reverse Mergers

Abbott

Gunny

Pollard

2017

Contemporary Accting Res

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We use reverse mergers to examine the impact of litigation risk on audit fees. In a reverse merger, a private company merges with a public company, and the private company's management takes over the resulting publicly traded firm. Reverse mergers create a unique test setting to provide estimates on the litigation risk premium because, while the litigation risk for formerly private firms whose equity becomes publicly traded increases, the remaining auditee-and auditor-related characteristics remain virtually unchanged. We document a litigation risk premium of approximately 27 percent. Moreover, we document that equity dispersion impacts the audit fee pricing of litigation risk and this relation is dramatically magnified in the publicly traded realm. Finally, we find that institutional investors demand higher audit effort in the form of higher audit fees in both the private-and public-equity settings.

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Section: Sample Selectionsupporting

confidence: 90%

“…Consistent with much of the prior literature (Givoly et al. ; Pollard ; Lee et al. ), many of these transactions ( n = 1,549) do not have sufficient audit fee or financial statement data.…”

Section: Sample Selectionsupporting

confidence: 57%

Section: Prior Researchmentioning

confidence: 99%

Section: Prior Researchmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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