Does Credible Auditing Add Value?

Ricardo D. Brito and Eduardo P. Peres
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Ricardo D. Brito: Ibmec São Paulo and CNPq
Eduardo P. Peres: Faculdades Ibmec/RJ

Brazilian Business Review, 2006, vol. 3, issue 2, 200-222

Abstract: This article studies the impact of the year 2002 audit failures on the auditors’ clients’ stock prices. Specifically, we examine the Big 5’s clients stock market impact surrounding various dates on which one of the Big 5’s audit procedures and independence were under scrutiny: Omnicom, Merck, WorldCom, Qwest, Xerox, Bristol Meyers, Duke Energy, El Paso and AOL events. In general, on failures involving Arthur Andersen, Andersen’s former client’s and clients of the auditor in place experienced statistically negative market reactions. On events involving other Big 4, clients didn’t experience statistically negative market reactions. The SEC order to CEO’s certification causes volatility but not statistically negative market reactions.

Keywords: financial reporting; auditors’ independence; accounting mistakes; market reaction (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:bbz:fcpbbr:v:3:y:2006:i:2:p:200-222

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