The extant literature focuses on the economic effect of significant changes that activist hedge funds enact, but shows mixed findings about the effect on the information environment. We investigate the informational effect on the third party — namely, the auditor — and argue that the potential significant changes in target firms heighten the complexity and uncertainty of the information environment, potentially increasing the workload or risk for auditors. We find that auditors react to hedge fund intervention by increasing audit fees. This relationship holds in a battery of identification tests that address endogeneity, including difference-in-differences analysis with propensity score matching, coarsened exact matching, entropy balancing, and a placebo test. Further analysis supports our conjecture that information complexity and uncertainty increase in target firms, leading to higher audit fees. Moreover, auditors increase their effort after intervention but do not seem to incur greater audit risk. This finding suggests that the information risk arising from the potential post-intervention changes is within auditors’ threshold of risk tolerance, consistent with the corporate governance effect of hedge fund activism.

中文翻译：

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对冲基金激进主义对审计定价的影响

现有文献侧重于激进对冲基金实施的重大变革的经济影响，但对于信息环境的影响却显示出不同的结果。我们调查了信息对第三方（即审计师）的影响，并认为目标公司潜在的重大变化加剧了信息环境的复杂性和不确定性，可能增加审计师的工作量或风险。我们发现审计师通过增加审计费用来应对对冲基金的干预。这种关系存在于一系列解决内生性的识别测试中，包括使用倾向得分匹配、粗化精确匹配、熵平衡和安慰剂测试的双重差异分析。进一步的分析支持了我们的猜想，即目标公司的信息复杂性和不确定性增加，导致审计费用更高。此外，审计师在干预后加大了工作力度，但似乎并没有带来更大的审计风险。这一发现表明，潜在的干预后变化所产生的信息风险在审计师的风险承受能力范围内，与对冲基金激进主义的公司治理效果一致。