The market reaction to Arthur Andersen's role in the Enron scandal: Loss of reputation or confounding effects?

Karen K. Nelson, Richard A. Price and Brian R. Rountree

Journal of Accounting and Economics, 2008, vol. 46, issue 2-3, pages 279-293

Abstract: This paper tests the hypothesis that negative client stock returns following the revelation that Enron documents had been shredded are attributable to confounding effects as opposed to a loss of Andersen's reputation. We find that a sharp decline in oil prices along with differences in the industry composition of the Andersen and Big 4 client portfolios combine to produce significantly more negative returns for Andersen clients relative to Big 4 clients, and for Andersen's Houston office clients relative to its clients in other locations. The market reaction to two other Enron-related events also offers little support for a reputation effect.

Keywords: Auditor; reputation; Arthur; Andersen; Event; studies; Earnings; response; coefficients (search for similar items in EconPapers)
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:eee:jaecon:v:46:y:2008:i:2-3:p:279-293

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