Abstract

http://ssrn.com/abstract=700069
 
 

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Information Quality, Auditor Reputation and Capitalization Effects: The Legacy of Enron


Peter G. Dunne


Central Bank of Ireland

Haim Falk


The Technion, Israel Institute of Technology

John Forker


Queen's University Management School

Ronan Powell


Dublin City University; UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

April 2005


Abstract:     
The purpose of this paper is to investigate the change in quality of the information environment pre- and post-Enron. We test whether the reputations of all auditors declined as a result of Enron. The impact on the market risk premium is also examined. An information processing model is developed to show that a structural break in information quality can produce a variety of outcomes for the responsiveness of the market to accounting information. We find that there was a fall in information quality post-Enron across all auditors. We also find that the Enron scandal, at least temporarily, adversely affected the market risk premium, confirming that information quality is part of systematic risk. These findings have obvious implications for the US audit industry, for accounting regulators and for the international competitiveness of US capital markets.

Number of Pages in PDF File: 36

Keywords: Accounting information quality, Auditor reputation, Earnings-response-coefficients, Risk premium

JEL Classification: D82, G12, G14, M41, M49

working papers series





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Date posted: April 6, 2005  

Suggested Citation

Dunne, Peter G. and Falk, Haim and Forker, John and Powell, Ronan, Information Quality, Auditor Reputation and Capitalization Effects: The Legacy of Enron (April 2005). Available at SSRN: http://ssrn.com/abstract=700069 or http://dx.doi.org/10.2139/ssrn.700069

Contact Information

Peter G. Dunne (Contact Author)
Central Bank of Ireland ( email )
P.O. Box 559
Dame Street
Dublin, 2
Ireland
Haim Falk
The Technion, Israel Institute of Technology ( email )
Faculty of Industrial Engineering & Management
Haifa 32000
ISRAEL
+972 4 829 4419 (Phone)
John Forker
Queen's University Management School ( email )
25 University Square
Belfast, Northern Ireland BT7 1NN
Northern Ireland
Ronan G. Powell
Dublin City University ( email )
Ireland 9
Dublin 9, leinster 9
Ireland
UNSW Australia Business School, School of Banking and Finance ( email )
Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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