Stock market reactions to audit failure in Japan: The case of Kanebo and ChuoAoyama

Shingo Numata, Fumiko Takeda

Research output: Contribution to journalArticlepeer-review

23 Citations (Scopus)

Abstract

This paper investigates the impact of accounting fraud by Kanebo and the resulting penalties on Kanebo and its auditor, ChuoAoyama, on the stock prices of clients of ChuoAoyama and the other Big 4 auditors in Japan. Studying such a case in a low-litigation country provides an opportunity to test whether loss of an auditors' reputation matters without an insurance rationale. We find that the announcements of poor audit quality has significantly decreased the stock prices of clients of ChuoAoyama and, to a lesser extent, stock prices of the clients of the other Big 4 auditors. This industry-wide spillover has not been previously studied.

Original languageEnglish
Pages (from-to)175-199
Number of pages25
JournalInternational Journal of Accounting
Volume45
Issue number2
DOIs
Publication statusPublished - 2010 Jun
Externally publishedYes

Keywords

  • Audit quality
  • Auditor reputation
  • Event study
  • Monitoring
  • Spillover

ASJC Scopus subject areas

  • Accounting
  • Finance

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