Edinburgh Napier University

  In this paper, we use event study methodology to examine the effect of two highly publicized accounting failures, at Enron and WorldCom both audited by Arthur Andersen, on the total stock returns of some companies in the UK also audited by Arthur Andersen. The results vary substantially between countries. We find no evidence of a significant impact in the UK or US. There is some evidence of negative abnormal returns at the time of the Enron scandal in Australia. However, this reaction was very short-lived and the negative abnormal returns on the stocks of Andersenaudited companies had been fully recovered within a week. Our results suggest that sharing an auditor with a firm that has issued corrections to accounts which have previously received an unqualified audit opinion does not significantly affect market perceptions of firms’ value, which suggests that the choice of auditor has little, if any, impact on market perceptions of the reliability of published financial information.