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

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

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.

Suggested Citation

  • Nelson, Karen K. & Price, Richard A. & Rountree, Brian R., 2008. "The market reaction to Arthur Andersen's role in the Enron scandal: Loss of reputation or confounding effects?," Journal of Accounting and Economics, Elsevier, vol. 46(2-3), pages 279-293, December.
    • Handle: RePEc:eee:jaecon:v:46:y:2008:i:2-3:p:279-293
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