Auditor's Reputation and Equity Offerings: The Case of Arthur Andersen


  • We thank an anonymous referee, Gary Sanger, and seminar participants at the 2003 Midwest Finance Association Meetings, the 2004 American Finance Association Meetings, and the 2004 Southern Finance Association Meetings for their helpful comments. We thank Patricia Peat for editorial assistance.


The certifying and monitoring role of auditors is valuable to clients. By examining the impact of Arthur Andersen's worsening reputation on its clients, we find a 200 basis point more negative reaction to seasoned equity offering (SEO) announcements for firms audited by Andersen. The median firm in our sample loses 31.4 million more than a non-Andersen client. We do not find any unusual underpricing for these SEOs, which suggests that any accounting concerns about the issuers are resolved before the issue dates.