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Was Arthur Andersen Different?: An Empirical Examination of Major Accounting Firms' Audits of Large Clients

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  • Theodore Eisenberg

    (Cornell Law School)

  • Jonathan Macey

    (Cornell Law School)

Abstract

Enron and other corporate financial scandals focused attention on the accounting industry in general and on Arthur Andersen in particular. Part of the policy response to Enron, the criminal prosecution of Andersen, eliminated one of the few major audit firms capable of auditing many large, public corporations. This article explores whether Andersen’s performance, as measured by frequency of financial restatements, measurably differed from that of other large auditors. Financial restatements trigger significant negative market reactions and their frequency can be viewed as a measure of accounting performance. We analyze the financial restatement activity of approximately 1,000 large, public firms from 1997 through 2001. After controlling for client size, region, time, and industry, we find no evidence that Andersen's performance significantly differed from that of other large accounting firms.

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  • Theodore Eisenberg & Jonathan Macey, "undated". "Was Arthur Andersen Different?: An Empirical Examination of Major Accounting Firms' Audits of Large Clients," Cornell Law School Working Papers cornell_clsops-1015, Cornell Law School.
    • Handle: RePEc:bep:cornel:cornell_clsops-1015
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    Cited by:

    1. Jamel Azibi & Hamza Azibi & Hubert Tondeur, 2017. "Institutional Activism, Auditor’s Choice and Earning Management after the Enron Collapse: Evidence from France," International Business Research, Canadian Center of Science and Education, vol. 10(2), pages 154-168, February.
    2. Douglas Cumming & Na Dai, 2009. "Capital Flows and Hedge Fund Regulation," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 6(4), pages 848-873, December.
    3. Mariassunta Giannetti & Tracy Yue Wang, 2016. "Corporate Scandals and Household Stock Market Participation," Journal of Finance, American Finance Association, vol. 71(6), pages 2591-2636, December.
    4. Gerry Gallery & Emerson Cooper & John Sweeting, 2008. "Corporate Disclosure Quality: Lessons from Australian Companies on the Impact of Adopting International Financial Reporting Standards," Australian Accounting Review, CPA Australia, vol. 18(3), pages 257-273, September.
    5. Ray Ball, 2009. "Market and Political/Regulatory Perspectives on the Recent Accounting Scandals," Journal of Accounting Research, Wiley Blackwell, vol. 47(2), pages 277-323, May.
    6. Ali Ozdagli, 2014. "Financial Frictions and Reaction of Stock Prices to Monetary Policy Shocks," 2014 Meeting Papers 1360, Society for Economic Dynamics.
    7. L. Peter Jennergren, 2024. "The economic incentive for risk taking in professional partnerships," Review of Managerial Science, Springer, vol. 18(7), pages 2141-2161, July.
    8. Sharad Asthana & Steven Balsam & Sungsoo Kim, 2009. "The effect of Enron, Andersen, and Sarbanes‐Oxley on the US market for audit services," Accounting Research Journal, Emerald Group Publishing Limited, vol. 22(1), pages 4-26, July.
    9. Autore, Don M. & Billingsley, Randall S. & Schneller, Meir I., 2009. "Information uncertainty and auditor reputation," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 183-192, February.
    10. Emilie Feldman, 2006. "A Basic Quantification of the Competitive Implications of the Demise of Arthur Andersen," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(3), pages 193-212, November.
    11. Michael D. Pfarrer & Ken G. Smith & Kathryn M. Bartol & Dmitry M. Khanin & Xiaomeng Zhang, 2008. "Coming Forward: The Effects of Social and Regulatory Forces on the Voluntary Restatement of Earnings Subsequent to Wrongdoing," Organization Science, INFORMS, vol. 19(3), pages 386-403, June.
    12. Mark E. Lokanan & Prerna Sharma, 2023. "Two Decades of Accounting Fraud Research: The Missing Meso-Level Analysis," SAGE Open, , vol. 13(3), pages 21582440231, September.
    13. Dyck, Alexander & Morse, Adair & Zingales, Luigi, 2023. "How pervasive is corporate fraud?," Working Papers 327, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    14. Jochen Bigus, 2007. "Die Sorgfaltsanreize des Wirtschaftsprüfers bei beschränkter Haftung," Schmalenbach Journal of Business Research, Springer, vol. 59(1), pages 61-86, February.
    15. Abigail B. Brown & Jacob Alex Klerman, 2012. "Independent Evaluation," Evaluation Review, , vol. 36(3), pages 186-219, June.
    16. Brennan, Michael J, 2004. "How Did It Happen?," University of California at Los Angeles, Anderson Graduate School of Management qt1047x6kv, Anderson Graduate School of Management, UCLA.

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