Does Reputation Discipline Big 4 Audit Firms?
43 Pages Posted: 4 Jul 2010 Last revised: 12 Jun 2013
Date Written: January 28, 2011
Abstract
Audit quality is thought to occur primarily due to litigation pressure. We report results from a study conducted in a low litigation environment (China) where a Big 4 audit firm (Deloitte) failed to detect a fraud involving a public company (Kelon). We find that Deloitte’s clients have negative abnormal returns of 4.4% at events pertaining to Kelon, and there is a spillover to clients of other Big 4 audit firms (negative abnormal returns of 1.2%) though these negative market reactions are moderated by strong corporate governance. Deloitte loses clients to local audit firms, and all Big 4 firms lose market share in the IPO market. Our results support a reputation rationale for audit quality, and also show contagion among Big 4 audit firms, and vulnerability of Big 4 firms to loss of clients to non Big 4 firms.
Keywords: auditor reputation, fraud, corporate governance, contagion
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Who Cares About Auditor Reputation?
By Jan Barton
-
Market and Political/Regulatory Perspectives on the Recent Accounting Scandals
By Ray Ball
-
Market and Political/Regulatory Perspectives on the Recent Accounting Scandals
By Ray Ball
-
The Credibility of Self-Regulation: Evidence from the Accounting Profession's Peer Review Program
By Clive S. Lennox and Gilles Hilary
-
Competition for Andersen's Clients
By Mark J. Kohlbeck, Brian W. Mayhew, ...
-
By Karen K. Nelson, Richard A. Price, ...