The Long‐Term Performance and Failure Risk of Firms Cited in the US SEC's Accounting and Auditing Enforcement Releases

29 Pages Posted: 13 Oct 2011

See all articles by Fei Leng

Fei Leng

University of Washington, Tacoma

Ehsan H. Feroz

University of Washington Tacoma, Milgard School of Business-Accounting ; University of Illinois at Urbana-Champaign; Government of the United States of America - US GAO Advisory Council; University of Minnesota Duluth, Labovitz School of Business-Department of Accounting; University of Minnesota, Carlson School of Management-Department of Accounting; American Accounting Association

Zhiyan Cao

University of Washington Tacoma

Sergio Davalos

University of Washington, Tacoma - Milgard School of Business

Date Written: September/October 2011

Abstract

We investigate 239 firms cited in the SEC's Accounting and Auditing Enforcement Releases (AAERs). We document significantly negative abnormal operating performance (measured using both cash‐flow‐based and earnings‐based metrics) in the second and third years following AAERs. We also detect significantly negative abnormal stock returns in up to three years following AAERs. We further find that AAER firms are more likely to fail in the post‐AAER period. Taken together, our findings suggest that the negative implications of an AAER citation resulting from egregious financial reporting violations can be long lasting and influence various facets of firm performance and survivability.

Keywords: AAER, operating performance, long‐run stock performance, corporate failure

Suggested Citation

Leng, Fei and Feroz, Ehsan H. and Cao, Zhiyan and Davalos, Sergio, The Long‐Term Performance and Failure Risk of Firms Cited in the US SEC's Accounting and Auditing Enforcement Releases (September/October 2011). Journal of Business Finance & Accounting, Vol. 38, Issue 7‐8, pp. 813-841, 2011, Available at SSRN: https://ssrn.com/abstract=1943360 or http://dx.doi.org/10.1111/j.1468-5957.2011.02249.x

Fei Leng (Contact Author)

University of Washington, Tacoma ( email )

1900 Commerce Street
Tacoma, WA 98402-3100
United States

Ehsan H. Feroz

University of Washington Tacoma, Milgard School of Business-Accounting ( email )

1900 Commerce Street, Campus Box 358420
Tacoma, WA 98402-3100
United States
(253) 692 4728 (Phone)
253 692 4523 (Fax)

HOME PAGE: http://www.tacoma.washington.edu/business

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive# 2307
Champaign, IL 61820
United States

Government of the United States of America - US GAO Advisory Council ( email )

441 G Street NW
Washington, DC 20548-0001
United States

University of Minnesota Duluth, Labovitz School of Business-Department of Accounting ( email )

10 University Drive
Labovitz School of Business
Duluth, MN 55812
United States
218-726-6988 (Phone)
218-726-8510 (Fax)

University of Minnesota, Carlson School of Management-Department of Accounting ( email )

420 Delaware St. SE
Minneapolis, MN 55455
United States

American Accounting Association ( email )

5717 Bessie Drive
Sarasota, FL 34233-2399
United States

Zhiyan Cao

University of Washington Tacoma ( email )

1900 Commerce St, Campus Box 358420
Tacoma, WA 98402-3100
United States
(253) 692-4821 (Phone)
(253) 692-4523 (Fax)

Sergio Davalos

University of Washington, Tacoma - Milgard School of Business ( email )

1900 Commerce Street
Campus Box 358420
Tacoma, WA 98402-3100
United States

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