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Does Credible Auditing Add Value?

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Author Info

  • Ricardo D. Brito

    (Ibmec São Paulo and CNPq)

  • Eduardo P. Peres

    (Faculdades Ibmec/RJ)

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.

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Bibliographic Info

Article provided by Fucape Business School in its journal Brazilian Business Review.

Volume (Year): 3 (2006)
Issue (Month): 2 (July)
Pages: 200-222

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Handle: RePEc:bbz:fcpbbr:v:3:y:2006:i:2:p:200-222

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Related research

Keywords: financial reporting; auditors’ independence; accounting mistakes; market reaction;

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