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Social responsibility and corporate reputation: The case of the Arthur Andersen Enron audit failure

Author

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  • Linthicum, Cheryl
  • Reitenga, Austin L.
  • Sanchez, Juan Manuel

Abstract

We examine the influence of social responsibility ratings on market returns to Arthur Andersen (AA) clients following the Enron audit failure. Chaney and Philipich (2002) found that AA's loss of reputation resulted in negative market returns to AA clients following the Enron audit failure. Proponents of social responsibility argue that social responsibility can improve the reputation of the firm, while detractors argue that social responsibility expenditures are a poor use of shareholder money. If social responsibility sends a signal to investors regarding the reputation/ethics of management, social responsibility could mitigate the negative returns to AA clients following the Enron audit failure. Using a matched sample of AA and non-AA firms, we do not find evidence that social responsibility mitigated the negative returns to AA clients following the Enron audit failure. Our results are inconsistent with claims that social responsibility can burnish a firm's reputation in a time of crisis and with prior research indicating a positive relationship between social responsibility and market value.

Suggested Citation

  • Linthicum, Cheryl & Reitenga, Austin L. & Sanchez, Juan Manuel, 2010. "Social responsibility and corporate reputation: The case of the Arthur Andersen Enron audit failure," Journal of Accounting and Public Policy, Elsevier, vol. 29(2), pages 160-176, March.
  • Handle: RePEc:eee:jappol:v:29:y::i:2:p:160-176
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    Citations

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    Cited by:

    1. Bilal Fayiz Omar & Nidal Omar Zallom, 2016. "Corporate social responsibility and market value: evidence from Jordan," Journal of Financial Reporting and Accounting, Emerald Group Publishing, vol. 14(1), pages 2-29, July.
    2. Cuili Qian & Xinzi Gao & Albert Tsang, 2015. "Corporate Philanthropy, Ownership Type, and Financial Transparency," Journal of Business Ethics, Springer, vol. 130(4), pages 851-867, September.
    3. Mahfuja Malik, 2015. "Value-Enhancing Capabilities of CSR: A Brief Review of Contemporary Literature," Journal of Business Ethics, Springer, vol. 127(2), pages 419-438, March.
    4. Bona-Sánchez, Carolina & Pérez-Alemán, Jerónimo & Santana-Martin, Domingo J., 2017. "Sustainability disclosure, dominant owners and earnings informativeness," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 625-639.
    5. repec:cmj:seapas:y:2017:i:15:p:419-425 is not listed on IDEAS
    6. repec:bbz:fcpbbr:v:8:y:2011:i:1:p:1-26 is not listed on IDEAS

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