The market response to information quality shocks: the case of Enron
Files in This Item:
|Dunne_Falk_Forker_Powell_Information_Quality.pdf||291.88 kB||Adobe PDF||Download|
|Title:||The market response to information quality shocks: the case of Enron||Authors:||Dunne, Peter G.
|Permanent link:||http://hdl.handle.net/10197/7512||Date:||7-Jul-2008||Online since:||2016-02-17T09:54:38Z||Abstract:||Relying on the market to provide incentives that would bring about optimal information quality is potentially a cost effective alternative to regulatory oversight. However, this depends on the ability of the market to recognize and price this attribute. In this article, we gain insights into the disciplinary role of the market by examining its response to Enron-related accounting scandals. We report evidence that information quality was in decline, leading upto the Enron-related scandals, but that the market was not sensitive to this decline. We confirm, however, that there was an abrupt decline in perceived information quality post-Enron. Furthermore, using an ex-ante methodology we provide strong evidence that auditor reputations were differentially affected by the scandals. We also find evidence that the Enron-related scandals adversely affected the market risk premium implying that information quality is part of systematic risk. Our results indicate that the market was operating effectively in recognizing lower quality information through an auditor reputation effect prior to the Sarbanes-Oxley Act. This calls into question the need for regulation to address the perceived deficit in information quality.||Type of material:||Journal Article||Publisher:||Taylor and Francis||Journal:||Applied Financial Economics||Volume:||18||Issue:||13||Start page:||1051||End page:||1066||Copyright (published version):||2008 Taylor and Francis||Keywords:||Accounting information quality; Auditor reputation; Earnings-response-coefficients; Risk premium||DOI:||10.1080/09603100701439341||Language:||en||Status of Item:||Peer reviewed|
|Appears in Collections:||Business Research Collection|
Show full item record
This item is available under the Attribution-NonCommercial-NoDerivs 3.0 Ireland. No item may be reproduced for commercial purposes. For other possible restrictions on use please refer to the publisher's URL where this is made available, or to notes contained in the item itself. Other terms may apply.