File(s) not publicly available
The market response to information quality shocks: the case of Enron
journal contribution
posted on 2023-06-08, 14:15 authored by Peter G Dunne, Haim Falk, John Forker, Ronan PowellRelying 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.
History
Publication status
- Published
Journal
Applied Financial EconomicsISSN
0960-3107Publisher
Taylor & FrancisExternal DOI
Issue
13Volume
18Page range
1051-1066Department affiliated with
- Business and Management Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2013-01-21Usage metrics
Categories
No categories selectedKeywords
Licence
Exports
RefWorks
BibTeX
Ref. manager
Endnote
DataCite
NLM
DC