Audit Firm Reputation and Client Stock Returns: Evidence from Envelopegate

51 Pages Posted: 10 Sep 2018 Last revised: 31 Jan 2019

See all articles by Beau Grant Barnes

Beau Grant Barnes

Washington State University

Marc Cussatt

Washington State University

Nancy L. Harp

Clemson University

Date Written: January 23, 2019

Abstract

We study market reaction to “Envelopegate,” a term coined by social media users to describe PwC’s error made during the 2017 Academy Awards, where a PwC partner handed Warren Beatty the wrong envelope prior to the announcement for “Best Picture.” The negative attention focused on PwC following the error was unprecedented; and we find that, relative to clients of other Big 4 CPA firms, PwC clients experienced lower stock returns on Oscars weekend and on the following Monday in 2017. Further, we show that the negative market reaction to Envelopegate is concentrated in companies for which the audit report is particularly valuable (e.g., companies with a high degree of information asymmetry between investors and management).

Keywords: auditor reputation; audit quality; organizational reputation; event study; expert intermediary

Suggested Citation

Barnes, Beau Grant and Cussatt, Marc and Harp, Nancy, Audit Firm Reputation and Client Stock Returns: Evidence from Envelopegate (January 23, 2019). Available at SSRN: https://ssrn.com/abstract=3240290 or http://dx.doi.org/10.2139/ssrn.3240290

Beau Grant Barnes (Contact Author)

Washington State University ( email )

Pullman, WA 99164
United States

Marc Cussatt

Washington State University ( email )

Pullman, WA 99164
United States

Nancy Harp

Clemson University ( email )

Clemson, SC 29631
United States
864-656-0431 (Phone)

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