| Because prior research shows the effect of the Andersen audit failure on Enron and on Andersen's other clients, this dissertation investigates the more general question as to whether a specific, well known audit failure of the remaining Big Four audit firms can similarly affect their other audit clients in the post-Enron environment. As in prior research, I seek to determine whether client stock price declines occur within the three day window surrounding the date of the announced audit failure and whether these declines also are correlated with client location or client industry.; Specifically, I investigate the affects of a publicly known audit failure on the firm's other clients' stock prices. This study considers four failures, Adelphia, HealthSouth, Xerox and Tyco, one each for the Big Four accounting firms. This stock price data is taken from 9,593 clients available on Compustat 2000 and Center for Research in Security Prices (CRSP) databases. Consistent with the Andersen study, I find corresponding client stock price declines for each audit failure of the Big Four. Unlike the Andersen study, I do not find that audits performed by the same office that performed the failed audit suffered a greater decline in abnormal returns. I am also unable to show that there is an industry effect. These results are limited to the well known Big Four audit failures of the post-Enron era and may not hold for smaller, lesser known failures of the Big Four or Non-Big Four audit firms. |
