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<p>We make a collective assessment of the consequences of 110 auditor reputation-damaging events with media coverage (“negative events”) from 2007 to 2019 for the U.S. Big Four. First, we fail to find systematic evidence that investors react negatively to negative events. Second, while auditors experience statistically significant client loss after negative events, the effects are short-lived and economically negligible. Furthermore, we find statistically greater effects in situations where theory suggests economic forces could magnify reputation effects (i.e., higher market competition, more replacement auditors, lower client switching costs, and higher audit office reputational capital). However, the economic impact remains small in all cross sections. Overall, our results suggest that negative events with media coverage have only a very marginal impact on investors’ perceptions of Big Four firms’ audit quality and the ability of these firms to attract and retain clients.</p>

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The consequences of reputation-damaging events for Big Four auditors: evidence from 110 cases with media coverage between 2007 and 2019

  • 期刊论文

  • 发表日期：

    2025年1月10日

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  • Matthew Ege,
  • Dechun Wang,
  • Nina Xu

摘要

We make a collective assessment of the consequences of 110 auditor reputation-damaging events with media coverage (“negative events”) from 2007 to 2019 for the U.S. Big Four. First, we fail to find systematic evidence that investors react negatively to negative events. Second, while auditors experience statistically significant client loss after negative events, the effects are short-lived and economically negligible. Furthermore, we find statistically greater effects in situations where theory suggests economic forces could magnify reputation effects (i.e., higher market competition, more replacement auditors, lower client switching costs, and higher audit office reputational capital). However, the economic impact remains small in all cross sections. Overall, our results suggest that negative events with media coverage have only a very marginal impact on investors’ perceptions of Big Four firms’ audit quality and the ability of these firms to attract and retain clients.