Accepted by Peter Clarkson. This paper was presented at the 2003 Contemporary Accounting Research Conference, generously supported by the Canadian Institute of Chartered Accountants, CMA Canada-Ontario, the Certified General Accountants of Ontario, and the Institute of Chartered Accountants of Ontario. I appreciate the helpful comments of Peter Clarkson (associate editor), John Courtis, Jere Francis, Ferdinand Gul, Réal Labelle (discussant), Stephen Lynn, Bin Srinidhi, two anonymous reviewers, and participants at the 2003 Contemporary Accounting Research conference. I also appreciate financial assistance from City University of Hong Kong.
Did Houston Clients of Arthur Andersen Recognize Publicly Available Bad News in a Timely Fashion?*
Article first published online: 15 JAN 2010
2005 Canadian Academic Accounting Association
Contemporary Accounting Research
Volume 22, Issue 1, pages 165–193, Spring 2005
How to Cite
KRISHNAN, G. V. (2005), Did Houston Clients of Arthur Andersen Recognize Publicly Available Bad News in a Timely Fashion?. Contemporary Accounting Research, 22: 165–193. doi: 10.1506/EGQD-BTG1-4RHD-7MU6
- Issue published online: 15 JAN 2010
- Article first published online: 15 JAN 2010
- Asymmetric timeliness;
- Capital markets;
- City-level audit markets;
Despite the allegations of audit failure and the enormous publicity surrounding Arthur Andersen's indictment, there is no systematic empirical evidence on characteristics of accounting information of clients of Arthur Andersen vis-à-vis other Big 6 auditors. I examine whether earnings of Andersen's Houston-based clients are timely in reporting bad news about future cash flows. I find that relative to a control group consisting of Houston-based clients audited by other Big 6 auditors, earnings of Andersen clients are less timely in reporting bad news. Further, it appears that operating accruals of Andersen clients are less effective in accelerating the timely recognition of bad news than operating accruals of non-Andersen clients. The findings suggest that the clients of Andersen's Houston office engaged in aggressive accounting practices, including delayed recognition of publicly available bad news.