Social Responsibility and Corporate Reputation: The Case of the Arthur Andersen Enron Audit Failure

36 Pages Posted: 23 Feb 2009 Last revised: 3 Apr 2014

See all articles by Austin L. Reitenga

Austin L. Reitenga

University of Alabama

Cheryl L. Linthicum

University of Texas - San Antonio

Juan Manuel Sanchez

University of Texas at San Antonio

Date Written: March 1, 2010

Abstract

We examine the influence of social responsibility ratings on market returns to Arthur Andersen (AA) clients following the Enron audit failure. Chaney and Philipich (2002) found that AA's loss of reputation resulted in negative market returns to AA clients following the Enron audit failure. Proponents of social responsibility argue that social responsibility can improve the reputation of the firm, while detractors argue that social responsibility expenditures are a poor use of shareholder money. If social responsibility sends a signal to investors regarding the reputation/ethics of management, social responsibility could mitigate the negative returns to AA clients following the Enron audit failure. Using a matched sample of AA and non-AA firms, we do not find evidence that social responsibility mitigated the negative returns to AA clients following the Enron audit failure. Our results are inconsistent with claims that social responsibility can burnish a firm's reputation in a time of crisis and with prior research indicating a positive relationship between social responsibility and market value.

Keywords: Social responsibility, Corporate Reputation, Audit Failure

JEL Classification: G11, G14, G34, M14, M42

Suggested Citation

Reitenga, Austin L. and Linthicum, Cheryl L. and Sanchez, Juan Manuel, Social Responsibility and Corporate Reputation: The Case of the Arthur Andersen Enron Audit Failure (March 1, 2010). Journal of Accounting and Public Policy, Vol. 29, No. 2, March-April 2010, Available at SSRN: https://ssrn.com/abstract=1348037

Austin L. Reitenga (Contact Author)

University of Alabama ( email )

Culverhouse College of Commerce
Box 870223
Tuscaloosa, AL 78249
United States
205-348-5780 (Phone)

Cheryl L. Linthicum

University of Texas - San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

Juan Manuel Sanchez

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

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