Auditor’s Reputation and Equity Offerings: The Case of Arthur Andersen

Stephanie Yates Rauterkus and Kyojik “Roy” Song

Financial Management, 2005, vol. 34, issue 4

Abstract: The certifying and monitoring role of auditors is valuable to clients. By examining the impact of Arthur Andersen’s worsening reputation on its clients, we find a 200 basis point more negative reaction to seasoned equity offering (SEO) announcements for firms audited by Andersen. The median firm in our sample loses $31.4 million more than a non-Andersen client. We do not find any unusual underpricing for these SEOs, which suggests that any accounting concerns about the issuers are resolved before the issue dates.

Date: 2005
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