Do Investors Care about Negative Business Press Coverage of Big 4 Accounting Firms?

• In Event: Market Reactions to Audit Processes

Abstract

We examine whether equity investors respond to negative business press coverage of the Big 4. We find that the extent of negative business press coverage of a Big 4 is associated with a higher percentage of votes against auditor ratification, lower earnings response coefficients for clients, and negative client abnormal returns on the day of news release. The extent of Big 4 negative business press coverage is also associated with a lower probability of gaining new clients and with a decrease in misstatement likelihood in the following year, suggesting that the affected auditor seeks to restore its reputation by increasing audit quality. Overall, this evidence is consistent with the business press playing a role in shaping the information environment of the Big 4 and suggests that the business press affects investors’ perception of the value of an audit.

Authors

• Matthew Stephen Ege, Texas A&M University

• Dechun Wang, Texas A&M University

• Nina Xu, Texas A&M University