Journal article
Audit Firm Reputational Consequences of Alleged Non-Accounting Misconduct by Clients: How Bargaining Power Temporarily Shifts Around Securities Litigation
Auditing : a journal of practice and theory, Vol.38(4), pp.77-100
11/01/2019
DOI: 10.2308/ajpt-52405
Abstract
This study examines how auditor-client bargaining power changes when misconduct unrelated to accounting, which we proxy for using non-accounting securities fraud lawsuits, is revealed at another client of the auditor. This type of misconduct can cause perceived reputational damage for the auditor that temporarily increases client bargaining power. In the year after suit filing, fees are lower for clients in the same city-industry office as the sued client, but are unchanged for clients of other auditors in the same city-industry, suggesting the effect is not due to economic distress. This effect is stronger (1) when suits are severe, likely because the negative information is more salient, and (2) when client bargaining power is stronger. Overall, these results provide evidence that reputation is important for U.S. audit firms. Further, the results also support the notion that reputation is susceptible to temporary damage from events beyond auditors' control.
Details
- Title: Subtitle
- Audit Firm Reputational Consequences of Alleged Non-Accounting Misconduct by Clients: How Bargaining Power Temporarily Shifts Around Securities Litigation
- Creators
- Dain C. Donelson - The University of Texas at AustinMatthew S. Ege - Mitchell InstituteJustin Leiby - University of Illinois System
- Resource Type
- Journal article
- Publication Details
- Auditing : a journal of practice and theory, Vol.38(4), pp.77-100
- Publisher
- Amer Accounting Assoc
- DOI
- 10.2308/ajpt-52405
- ISSN
- 0278-0380
- eISSN
- 1558-7991
- Number of pages
- 24
- Grant note
- Gies College of Business Red McCombs School of Business Mays Business School
- Language
- English
- Date published
- 11/01/2019
- Academic Unit
- Accounting; Law Faculty
- Record Identifier
- 9984380385202771
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