Client Security Price Reactions to the Laventhol and Horwath Bankruptcy

Baber, William R.; Kumar, Krishna R.; Verghese, Thomas

doi:10.2307/2491494

Cited by 96 publications

(44 citation statements)

References 1 publication

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“…These findings contradict the findings of previous studies that investigate the importance of audit firm reputation from the point of view of investors in more developed markets (Menon and Williams, 1994;Baber et al, 1995;Chaney and Philipich, 2002;Krishnamurty et al, 2006;Cahan et al, 2009). This supports our previous arguments suggesting that due to structural differences and the corporate practices in emerging markets, potential benefits of mandatory auditor rotation in developed countries might not be achieved or valued in an emerging economy.…”

Section: Number Of Eventscontrasting

confidence: 99%

Auditor rotation at Borsa Istanbul firms: an event study

Arioglu

Tuan

2015

Pressacademia

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This study investigates the market reaction surrounding the announcements of audit firm rotation by public firms quoted at BIST. In addition, it investigates how the market reaction to audit firm rotation changes based on the reputation of the previous and the new audit firms. After conducting an event study, we are unable to provide evidence suggesting that investors in Turkish capital markets value audit firm rotation. The market reaction surrounding the announcements of public firms to switch audit firms or to renew their contracts with the current audit firms is not statistically significant. Our findings also suggest that investors in Turkish capital markets do not value the reputation of audit firms when public firms switch auditors as well. The results are robust to various event windows and alternative audit firm reputation definitions.

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Section: Number Of Eventscontrasting

confidence: 99%

Auditor rotation at Borsa Istanbul firms: an event study

Arioglu

Tuan

2015

Pressacademia

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“…Menon and Williams (1994) and Baber et al (1995) examine the reaction of client stock prices to the bankruptcy of Laventhol and Horwath, at the time the seventh largest audit firm in the U.S. Both studies report a significant negative reaction to the announcement, consistent with both the insurance and reputational roles for auditors.…”

Section: Previous Literature and Empirical Predictionsmentioning

confidence: 99%

Audit Quality and Auditor Reputation: Evidence from Japan*

Skinner

Srinivasan²

2009

SSRN Journal

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ABSTRACT:We study events surrounding ChuoAoyama's failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC's Japanese affiliate and one of Japan's largest audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months for its role in the Kanebo fraud. This unprecedented action followed a series of events that seriously damaged ChuoAoyama's reputation. We use these events to provide evidence on the importance of auditors' reputation for quality in a setting where litigation plays essentially no role. Around one quarter of ChuoAoyama's clients defected from the firm after its suspension, consistent with the importance of reputation. Larger firms and those with greater growth options were more likely to leave, also consistent with the reputation argument.

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“…Witness the accounting scandals during the early years of this decade and the vast literature addressing the failures of corporate governance (Baber et al , 1995;Levitt, 1998;Bratton, 2002;Chaney and Philpich, 2002;Gordon, 2002;Brickey, 2003;Cox, 2003;Cunningham, 2003;Coffee, 2004) and cooking the books. These perceived failures ultimately gave birth to the Sarbanes-Oxley Act of 2002. them for deviations from the forecasts embedded in the MRD value, as reflected in the unexpected components of the income statement and the Changes in Assets Composition Statement.…”

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confidence: 99%

To Fair Value or Not to Fair Value: A Broader Perspective

Ronen

2008

Abacus

129

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Fair value is considered here with respect to the two primary objectives of financial statements proposed in the joint conceptual framework that is under development by the FASB and the IASB, namely (a) informativeness-to assist providers of capital in predicting, evaluating, and comparing the amounts, timing and uncertainty of future cash flows, and (b) stewardship-to assist in evaluating how efficient and effective managers have been in enhancing shareholders' value. More specifically, a comprehensive set of accounting measures and a set of corporate governance reforms intended to align corporate insiders' and auditors' behaviour and decisions with the interests of investors is outlined. Suggested reforms show how to present a mix of effectively historical quantifications, exit values, and the discounted values of future cash flows expected from the particularized use of combinations of assets within the firm. Additionally, the article describes how markets can be reformed in order to align the interests of the officers who prepare such accounts, and the auditors who certify them, with those of investors. These market-based reforms would require auditors to insure misrepresentations, and managers to take equity to induce truthful reporting. Also included is a radical extension to earlier proposals by the author, requiring an officer of the company to make the market in shares in a way that would place limits upon the value of the insider's private information.

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Client Security Price Reactions to the Laventhol and Horwath Bankruptcy

Cited by 96 publications

References 1 publication

Auditor rotation at Borsa Istanbul firms: an event study

Auditor rotation at Borsa Istanbul firms: an event study

Audit Quality and Auditor Reputation: Evidence from Japan*

To Fair Value or Not to Fair Value: A Broader Perspective

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