Private Equity Investors and Audit Quality : Evidence from Sweden

Abstract: Private Equity Investors plays a significant role in the Swedish economy, actively involved in the corporate governance of their portfolio companies to reduce risks. In this study, we investigate the impact of PE investors on the audit quality of their portfolio companies. We collected a comprehensive dataset of 366 PE transactions from 2013 to 2018 and analyzed audit fee and auditor information for 349 PE-owned companies over a 4-year period during the acquisition, comparing the results with a control group of 304 companies not acquired by PE. Our findings reveal an association between auditor changes and PE investors, with portfolio firms more likely to switch to a Big 4 audit firm when PE investor becomes involved. However, our results do not indicate higher audit fees for PE-backed companies after the acquisition. These findings suggest that PE investors may prioritize audit quality in their portfolio companies by changing auditors, often to a Big 4.