Andersen implosion over Enron:
an analysis of the contagion effect
on Fortune 500 firms
Joann Noe Cross
Department of Accounting, University of Wisconsin Oshkosh,
Oshkosh, Wisconsin, USA, and
Robert A. Kunkel
Department of Finance & Business Law, University of Wisconsin Oshkosh,
Oshkosh, Wisconsin, USA
Abstract
Purpose – The purpose of this paper is to examine how the Andersen implosion over Enron
impacted Fortune 500 firms that were competitors of Enron and/or audited by Andersen. This event
provides an opportunity to study various contagion effects.
Design/methodology/approach – An event study methodology is used to analyze the immediate
financial impact of the Andersen implosion on competitors of Enron and/or firms audited by
Andersen. More specifically, how did the announcement of the implosion impact these firms?
Findings – The results support a strong industry contagion effect where Enron’s failure benefited
the surviving energy/utility firms who could then increase their market shares. The authors find the
energy/utility firms not audited by Andersen, on average, experienced an astounding 2.5 percent
increase in market capitalization when the audit scandal was announced. In dollar terms, the mean and
median market capitalization increases were $226 million and $101 million, respectively. In the
aggregate, the 21 utility/energy firms gained $4.76 billion in market capitalization.
Research limitations/implications – The results show the importance of the auditing process and
the impact of unethical actions on the firm, their auditor, and their competitors. One limitation is the
data are limited to large Fortune 500 firms.
Originality/value – This is the first study, to the authors’ knowledge, that evaluates the contagion
effect of the Andersen/Enron audit scandal on Fortune 500 firms: in the same industry as Enron;
audited by Andersen; and operating in the same industry as Enron and audited by Andersen.
Keywords United States of America, Financial reporting, Auditing, Energy industry, Banruptcy,
Andersen, Enron, Contagion effect, Fortune 500, Event study
Paper type Research paper
1. Introduction
The whole duty of an auditor may be summed up in a very few words – it is that of verifying
balance sheets (Accountant, editorial, April 23, 1881 as quoted in Chambers (1995, p. 81)).
[A]uditing, as carried on under the present system, is of no practical concern as evidence of
the true financial position of a company [. . .] auditors’ certificates [. . .] merely certify that the
balance sheet is correctly copied from the books, sometimes with the addition that the
auditors have counted the cash and inspected the bill case and the security box. Audits under
such conditions are a delusion and a snare (Vanity Fair, October 6, 1883 as quoted in
Chambers (1995, p. 94)).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0307-4358.htm
MF
38,7
678
Managerial Finance
Vol. 38 No. 7, 2012
pp. .
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1. Andersen implosion over Enron: an analysis of the contagion effect on Fortune 500 firmsDocument 1 of 1
Andersen implosion over Enron: an analysis of the contagion effect on Fortune 500 firms
Author: Joann Noe Cross; Kunkel, Robert A
ProQuest document link
Abstract: Purpose - The purpose of this paper is to examine how the Andersen implosion over Enron impacted Fortune 500 firms that were competitors of Enron and/or audited by Andersen. This event provides an opportunity to study various contagion effects. Design/methodology/approach - An event study methodology is used to analyze the immediate financial impact of the Andersen implosion on competitors of Enron and/or firms audited by Andersen. More specifically, how did the announcement of the implosion impact these firms? Findings - The results support a strong industry contagion effect where Enron's failure benefited the surviving energy/utility firms who could then increase their market shares. The authors find the energy/utility firms not audited by Andersen, on average, experienced an astounding 2.5 percent increase in market capitalization when the audit scandal was announced. In dollar terms, the mean and median market capitalization increases were $226 million and $101 million, respectively. In the aggregate, the 21 utility/energy firms gained $4.76 billion in market capitalization. Research limitations/implications - The results show the importance of the auditing process and the impact of unethical actions on the firm, their auditor, and their competitors. One limitation is the data are limited to large Fortune 500 firms. Originality/value - This is the first study, to the authors' knowledge, that evaluates the contagion effect of the Andersen/Enron audit scandal on Fortune 500 firms: in the same industry as Enron; audited by Andersen; and operating in the same industry as Enron and audited by Andersen.
Full text: Equity Markets - papers presented at the 25th Annual Meeting of the Academy of Finance
Edited by Monzurul Hoque
1 Introduction
The whole duty of an auditor may be summed up in a very few words - it is that of verifying balance sheets (Accountant, editorial, April 23, 1881 as quoted in [4] Chambers (1995, p. 81)).
[A]uditing, as carried on under the present system, is of no practical concern as evidence of the true financial position of a company [...] auditors' certificates [...] merely certify that the balance sheet is correctly copied from the books, sometimes with the addition that the auditors have counted the cash and inspected the bill case an ...
Running head UNIT V ARTICLE REVIEW1Unit V Article Revie.docxagnesdcarey33086
Running head: UNIT V ARTICLE REVIEW
1
Unit V Article Review
Student Name
Columbia Southern University
Unit V Article Review
Begin drafting the body of the article review here. Remember to indent the first line of each paragraph.
Reference
Cross, J. N., & Kunkel, R. A. (2012). Andersen implosion over Enron: An analysis of the contagion effect on Fortune 500 firms. Managerial Finance 38(7), 678-688.
Andersen implosion over Enron:
an analysis of the contagion effect
on Fortune 500 firms
Joann Noe Cross
Department of Accounting, University of Wisconsin Oshkosh,
Oshkosh, Wisconsin, USA, and
Robert A. Kunkel
Department of Finance & Business Law, University of Wisconsin Oshkosh,
Oshkosh, Wisconsin, USA
Abstract
Purpose – The purpose of this paper is to examine how the Andersen implosion over Enron
impacted Fortune 500 firms that were competitors of Enron and/or audited by Andersen. This event
provides an opportunity to study various contagion effects.
Design/methodology/approach – An event study methodology is used to analyze the immediate
financial impact of the Andersen implosion on competitors of Enron and/or firms audited by
Andersen. More specifically, how did the announcement of the implosion impact these firms?
Findings – The results support a strong industry contagion effect where Enron’s failure benefited
the surviving energy/utility firms who could then increase their market shares. The authors find the
energy/utility firms not audited by Andersen, on average, experienced an astounding 2.5 percent
increase in market capitalization when the audit scandal was announced. In dollar terms, the mean and
median market capitalization increases were $226 million and $101 million, respectively. In the
aggregate, the 21 utility/energy firms gained $4.76 billion in market capitalization.
Research limitations/implications – The results show the importance of the auditing process and
the impact of unethical actions on the firm, their auditor, and their competitors. One limitation is the
data are limited to large Fortune 500 firms.
Originality/value – This is the first study, to the authors’ knowledge, that evaluates the contagion
effect of the Andersen/Enron audit scandal on Fortune 500 firms: in the same industry as Enron;
audited by Andersen; and operating in the same industry as Enron and audited by Andersen.
Keywords United States of America, Financial reporting, Auditing, Energy industry, Banruptcy,
Andersen, Enron, Contagion effect, Fortune 500, Event study
Paper type Research paper
1. Introduction
The whole duty of an auditor may be summed up in a very few words – it is that of verifying
balance sheets (Accountant, editorial, April 23, 1881 as quoted in Chambers (1995, p. 81)).
[A]uditing, as carried on under the present system, is of no practical concern as evidence of
the true financial position of a company [. . .] auditors’ certificates [. . .] merely certify that the
balance sheet is correctly copied from the books, .
This document summarizes a study examining the impact of mergers and acquisitions on research and development (R&D) intensity within high-tech industries from 1990-2014. The study uses an event study methodology to analyze stock price reactions around merger announcements. Key findings include:
1) 31.1% of acquiring firms saw positive abnormal stock returns around announcements, while 69% saw negative returns, surprisingly indicating investor pessimism about mergers.
2) 91.3% of target firms saw positive abnormal returns, as expected given they were being acquired.
3) The study aims to determine if event studies can help antitrust agencies evaluate potential pro-competitive or anti-competitive effects of mergers in innovative sectors
This document provides background information for an undergraduate thesis analyzing stock price reactions to lawsuits against companies for accounting fraud. The thesis will conduct a four-way analysis of stock price movements around lawsuit filings pre- and post-Sarbanes-Oxley, and for class action vs. non-class action lawsuits. Major corporate accounting scandals like Enron and WorldCom motivated the passage of Sarbanes-Oxley in 2002. The document reviews key provisions of Sarbanes-Oxley and the prerequisites for class action lawsuits. The thesis aims to determine if stock prices declined more for lawsuits after Sarbanes-Oxley or for class action lawsuits.
This document summarizes an undergraduate thesis analyzing stock price reactions to lawsuits against companies for accounting fraud. The thesis conducts a four-way analysis of stock price movements around lawsuit filings both before and after the Sarbanes-Oxley Act, and for class action vs. non-class action lawsuits. The author expects to find more negative stock reactions for lawsuits post-SOX and for class action lawsuits. Regression analysis will be used to test the assumptions. The thesis is motivated by interest in how corporate misconduct affects business and the role of SOX and class action lawsuits.
The document describes the design of prediction models to analyze the effects of tort reforms on malpractice claims in Texas. Key points:
1) Regression models were developed using variables like year, population, number of physicians/lawyers, GDP, and CPI to predict the frequency and severity of malpractice claims.
2) Q-Q plots showed the variables were normally distributed, allowing use of statistical tests like t-tests and chi-square tests.
3) The best regression models for predicting frequency and severity had adjusted R-squared values of 0.503 and 0.423, respectively, and all coefficients were statistically significant.
4) The models will be used to simulate claim losses and develop a
This document analyzes different fraud theories - the fraud triangle, fraud diamond, and fraud pentagon - and their ability to detect corporate fraud in Indonesia. It reviews the literature on each theory and their components (pressure, opportunity, rationalization, capability, arrogance). The study uses secondary data from 310 publicly listed Indonesian companies from 2012-2017 to empirically test if the theories significantly affect corporate fraud. The results of statistical tests show the data supports all the hypotheses, indicating all three fraud theories can be used to investigate corporate fraud based only on publicly available secondary data.
This document provides a SWOT analysis of Enron prior to its collapse in 2001. It identifies strengths such as Enron's human capital pool and competitive advantage in jet fuel sales after 9/11. Weaknesses included the failed board of directors, unethical practices, and a corporate culture that enabled fraud. Opportunities existed in growing clean energy markets and business expansion to Asia. Threats included increased competition, regulations, and the economic impacts of the subprime mortgage crisis. The analysis ultimately concludes that Enron's downfall was due to unethical internal practices rather than external forces.
11 October 2016Page of 1 ProQuest_________________________.docxpaynetawnya
11 October 2016
Page of 1
ProQuest
_______________________________________________________________
_______________________________________________________________
Report Information from ProQuest
October 11 2016 16:58
_______________________________________________________________
COLUMBIA SOUTHERN UNIVERSITY LIBRARY
Table of contents
PLEASE RIGHT CLICK HERE AND SELECT "Update Field" TO UPDATE TABLE OF CONTENTS.
1. Andersen implosion over Enron: an analysis of the contagion effect on Fortune 500 firmsDocument 1 of 1
Andersen implosion over Enron: an analysis of the contagion effect on Fortune 500 firms
Author: Joann Noe Cross; Kunkel, Robert A
ProQuest document link
Abstract: Purpose - The purpose of this paper is to examine how the Andersen implosion over Enron impacted Fortune 500 firms that were competitors of Enron and/or audited by Andersen. This event provides an opportunity to study various contagion effects. Design/methodology/approach - An event study methodology is used to analyze the immediate financial impact of the Andersen implosion on competitors of Enron and/or firms audited by Andersen. More specifically, how did the announcement of the implosion impact these firms? Findings - The results support a strong industry contagion effect where Enron's failure benefited the surviving energy/utility firms who could then increase their market shares. The authors find the energy/utility firms not audited by Andersen, on average, experienced an astounding 2.5 percent increase in market capitalization when the audit scandal was announced. In dollar terms, the mean and median market capitalization increases were $226 million and $101 million, respectively. In the aggregate, the 21 utility/energy firms gained $4.76 billion in market capitalization. Research limitations/implications - The results show the importance of the auditing process and the impact of unethical actions on the firm, their auditor, and their competitors. One limitation is the data are limited to large Fortune 500 firms. Originality/value - This is the first study, to the authors' knowledge, that evaluates the contagion effect of the Andersen/Enron audit scandal on Fortune 500 firms: in the same industry as Enron; audited by Andersen; and operating in the same industry as Enron and audited by Andersen.
Full text: Equity Markets - papers presented at the 25th Annual Meeting of the Academy of Finance
Edited by Monzurul Hoque
1 Introduction
The whole duty of an auditor may be summed up in a very few words - it is that of verifying balance sheets (Accountant, editorial, April 23, 1881 as quoted in [4] Chambers (1995, p. 81)).
[A]uditing, as carried on under the present system, is of no practical concern as evidence of the true financial position of a company [...] auditors' certificates [...] merely certify that the balance sheet is correctly copied from the books, sometimes with the addition that the auditors have counted the cash and inspected the bill case an ...
Running head UNIT V ARTICLE REVIEW1Unit V Article Revie.docxagnesdcarey33086
Running head: UNIT V ARTICLE REVIEW
1
Unit V Article Review
Student Name
Columbia Southern University
Unit V Article Review
Begin drafting the body of the article review here. Remember to indent the first line of each paragraph.
Reference
Cross, J. N., & Kunkel, R. A. (2012). Andersen implosion over Enron: An analysis of the contagion effect on Fortune 500 firms. Managerial Finance 38(7), 678-688.
Andersen implosion over Enron:
an analysis of the contagion effect
on Fortune 500 firms
Joann Noe Cross
Department of Accounting, University of Wisconsin Oshkosh,
Oshkosh, Wisconsin, USA, and
Robert A. Kunkel
Department of Finance & Business Law, University of Wisconsin Oshkosh,
Oshkosh, Wisconsin, USA
Abstract
Purpose – The purpose of this paper is to examine how the Andersen implosion over Enron
impacted Fortune 500 firms that were competitors of Enron and/or audited by Andersen. This event
provides an opportunity to study various contagion effects.
Design/methodology/approach – An event study methodology is used to analyze the immediate
financial impact of the Andersen implosion on competitors of Enron and/or firms audited by
Andersen. More specifically, how did the announcement of the implosion impact these firms?
Findings – The results support a strong industry contagion effect where Enron’s failure benefited
the surviving energy/utility firms who could then increase their market shares. The authors find the
energy/utility firms not audited by Andersen, on average, experienced an astounding 2.5 percent
increase in market capitalization when the audit scandal was announced. In dollar terms, the mean and
median market capitalization increases were $226 million and $101 million, respectively. In the
aggregate, the 21 utility/energy firms gained $4.76 billion in market capitalization.
Research limitations/implications – The results show the importance of the auditing process and
the impact of unethical actions on the firm, their auditor, and their competitors. One limitation is the
data are limited to large Fortune 500 firms.
Originality/value – This is the first study, to the authors’ knowledge, that evaluates the contagion
effect of the Andersen/Enron audit scandal on Fortune 500 firms: in the same industry as Enron;
audited by Andersen; and operating in the same industry as Enron and audited by Andersen.
Keywords United States of America, Financial reporting, Auditing, Energy industry, Banruptcy,
Andersen, Enron, Contagion effect, Fortune 500, Event study
Paper type Research paper
1. Introduction
The whole duty of an auditor may be summed up in a very few words – it is that of verifying
balance sheets (Accountant, editorial, April 23, 1881 as quoted in Chambers (1995, p. 81)).
[A]uditing, as carried on under the present system, is of no practical concern as evidence of
the true financial position of a company [. . .] auditors’ certificates [. . .] merely certify that the
balance sheet is correctly copied from the books, .
This document summarizes a study examining the impact of mergers and acquisitions on research and development (R&D) intensity within high-tech industries from 1990-2014. The study uses an event study methodology to analyze stock price reactions around merger announcements. Key findings include:
1) 31.1% of acquiring firms saw positive abnormal stock returns around announcements, while 69% saw negative returns, surprisingly indicating investor pessimism about mergers.
2) 91.3% of target firms saw positive abnormal returns, as expected given they were being acquired.
3) The study aims to determine if event studies can help antitrust agencies evaluate potential pro-competitive or anti-competitive effects of mergers in innovative sectors
This document provides background information for an undergraduate thesis analyzing stock price reactions to lawsuits against companies for accounting fraud. The thesis will conduct a four-way analysis of stock price movements around lawsuit filings pre- and post-Sarbanes-Oxley, and for class action vs. non-class action lawsuits. Major corporate accounting scandals like Enron and WorldCom motivated the passage of Sarbanes-Oxley in 2002. The document reviews key provisions of Sarbanes-Oxley and the prerequisites for class action lawsuits. The thesis aims to determine if stock prices declined more for lawsuits after Sarbanes-Oxley or for class action lawsuits.
This document summarizes an undergraduate thesis analyzing stock price reactions to lawsuits against companies for accounting fraud. The thesis conducts a four-way analysis of stock price movements around lawsuit filings both before and after the Sarbanes-Oxley Act, and for class action vs. non-class action lawsuits. The author expects to find more negative stock reactions for lawsuits post-SOX and for class action lawsuits. Regression analysis will be used to test the assumptions. The thesis is motivated by interest in how corporate misconduct affects business and the role of SOX and class action lawsuits.
The document describes the design of prediction models to analyze the effects of tort reforms on malpractice claims in Texas. Key points:
1) Regression models were developed using variables like year, population, number of physicians/lawyers, GDP, and CPI to predict the frequency and severity of malpractice claims.
2) Q-Q plots showed the variables were normally distributed, allowing use of statistical tests like t-tests and chi-square tests.
3) The best regression models for predicting frequency and severity had adjusted R-squared values of 0.503 and 0.423, respectively, and all coefficients were statistically significant.
4) The models will be used to simulate claim losses and develop a
This document analyzes different fraud theories - the fraud triangle, fraud diamond, and fraud pentagon - and their ability to detect corporate fraud in Indonesia. It reviews the literature on each theory and their components (pressure, opportunity, rationalization, capability, arrogance). The study uses secondary data from 310 publicly listed Indonesian companies from 2012-2017 to empirically test if the theories significantly affect corporate fraud. The results of statistical tests show the data supports all the hypotheses, indicating all three fraud theories can be used to investigate corporate fraud based only on publicly available secondary data.
This document provides a SWOT analysis of Enron prior to its collapse in 2001. It identifies strengths such as Enron's human capital pool and competitive advantage in jet fuel sales after 9/11. Weaknesses included the failed board of directors, unethical practices, and a corporate culture that enabled fraud. Opportunities existed in growing clean energy markets and business expansion to Asia. Threats included increased competition, regulations, and the economic impacts of the subprime mortgage crisis. The analysis ultimately concludes that Enron's downfall was due to unethical internal practices rather than external forces.
The document discusses the significance of the Sarbanes-Oxley Act of 2002, which was enacted in response to several major corporate and accounting scandals in the early 2000s including Enron. It describes how Enron misstated expenses, used mark-to-market accounting to overstate asset values, and created fake partnerships to hide losses. This led to Enron's bankruptcy. The Sarbanes-Oxley Act aimed to restore investor confidence by strengthening corporate responsibility and financial disclosure standards. Key provisions included CEO/CFO certification of financial reports and increased regulation of accounting practices and auditors.
Exposure to financial distress in businesses adversely affects the groups related to the business and
the general economic structure. Financial distress, which is one of the most important research topics in the
recent finance literature, has always been important in economies with high cyclical fluctuations such as Turkey
and has turned into an area where intensive studies are carried out
The Enron scandal involved accounting fraud at the energy company Enron. Enron used mark-to-market accounting to recognize future profits from long-term energy contracts before they were realized. They also used special purpose entities to hide debts and losses. This allowed Enron to misrepresent its financial performance and hide its true financial situation. When the fraud was uncovered, Enron collapsed and filed for bankruptcy in 2001, costing investors and employees billions and changing accounting practices.
Effect of Leverage on Expected Stock Returns and Size of the FirmAakash Kumar
This document presents a study on the effect of leverage on expected stock returns and firm size for companies listed on the KSE100 index in Pakistan. It reviews previous literature that has found mixed results on the relationship between leverage and various performance measures. The study uses linear regression to analyze the impact of leverage on earnings-to-price ratio as a proxy for expected stock returns and market value as a proxy for firm size. Preliminary results are presented along with conclusions and recommendations for further study.
Corporate Governance Lessons from EnronOghale Enuku
The document discusses the Enron scandal and the resulting reforms. It analyzes Enron's risk management failures and ethical shortcomings like conflicts of interest between executives and accounting firms. While the Sarbanes-Oxley Act addressed disclosure and certification requirements, the document argues the reforms did not fully address the root causes of Enron's collapse related to negligence of risk management and misconduct. This is evidenced by later financial crises still exhibiting corporate governance failures despite the reforms. In conclusion, the document states Enron's board failed to properly monitor executives and the true issue remains a lack of ethics, not rules and regulations.
This document discusses various instances of professional malpractice in different fields such as medicine, accounting, auditing, lending, and business ethics. It provides examples of large corporate accounting scandals like Enron and WorldCom where companies misrepresented their financial situations. New regulations and stricter enforcement are being implemented to curb malpractice and improve integrity in financial reporting and other professions.
This document provides an overview of the key elements relevant to analyzing and measuring economic damages in a judicial action. It discusses the goals of economic damages awards to compensate the damaged party and deter wrongful acts. It then covers various legal standards like causation, certainty, and mitigation. It also defines the types of courts, claims, and remedies involved in a judicial action. The document aims to help damages analysts understand the legal context and select appropriate damages measurement methods.
This document provides an overview of the key elements relevant to analyzing and measuring economic damages in a judicial action. It discusses the goals of economic damages awards to compensate the damaged party and deter wrongful acts. It then covers various legal standards like causation, certainty, and mitigation. It also defines the types of courts, claims, and remedies involved in a judicial action. The document aims to help damages analysts understand the legal context and select appropriate damages measurement methods.
Running head AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFO.docxjoellemurphey
Running head: AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
An Empirical Study on Accounting and Auditing Enforcement Releases Cases
Xin Tan
Southeast Missouri State University
Author Note
This paper was submitted in partial fulfillment of the requirements of the degree of Masters in Business Administration
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
31
Abstract
The objective of the paper is to provide an empirical study about the characteristics of accounting fraud and fraudulent financial reporting occurrences, including violation length, industry, audit tenure and violation types. To do so, I collected Accounting and Auditing Enforcement Releases (AAERs) issued by the Securities and Exchange Commission (SEC) for accounting fraud committed by companies during 2009-2011, which provides a fraud sample consisting of 66 companies. I analyzed each incident and explore key company characteristics in instances of fraudulent reporting in AAERs.
APPLIED RESEARCH ACCEPTANCE SHEET
An Empirical Study on Accounting and Auditing Enforcement Releases Cases
Submitted by Xin Tan in partial fulfillment of the requirements for the degree of Masters in Business Administration.
Accepted on behalf of the Faculty of the School of Graduate Studies and Research by the Applied Research Project Committee.
(Date)
Advisor/Chair (Name,Ph.D.)
______________________________ (Date)
MBA Coordinator (Name, Ph.D.)
CONTENTS
ABSTRACT.............................................................. .............................. ……………. i
ACCEPTANCE PAGE.............................................. ………………… ii
CONTENTS....................................... …………....................................... …………iii
INTRODUCTION…………………………………………………….…...1
LITERATURE REVIEW……………………………………………….....3
METHOD…………………………………………………….……………… 4
RESEARCH DESIGN AND RESULT………………………………...… 5
CONCLUSION………………………………………………………….....15
LIMITATION…………………………………………………..... .... …...... 16
REFERENCES…………………………………………………………. …18
APPENDIX …………………………………………………………. ……. 20
I. Introduction
While the United States experienced an unprecedented storm of accounting fraud, like Enron and WorldCom, around the beginning of twenty-first century, it is still unclear to what extent the typical fraud profile has changed in recent years. In the last decade, the accounting industry has made a variety of legislative and regulatory changes because of accounting fraud, such as the Sarbanes-Oxley Act of 2002. This act was enacted as a reaction to major accounting scandals and it enhanced standards for all U.S. public companies boards, management and public accounting firms. Fraudulent financial reporting can have significant consequences for companies, stockholde ...
SEC Enforcement Actions Premium Paper Help.docxwrite12
The document discusses SEC Accounting and Auditing Enforcement Releases (AAERs), which describe violations of securities laws. The SEC's Division of Enforcement investigates possible violations, compels production of documents, and presents findings to the SEC for review. Academics have used AAERs as case studies in auditing courses and as data to study issues like earnings management. One study found nearly 300 alleged fraudulent financial reporting cases by examining AAERs from 1987 to 1997.
This document is a research paper from the International Journal of Finance, Accounting and Economics that examines the effectiveness of market ratios in predicting financial distress among listed firms in Kenya. The paper includes an abstract, introduction, literature review, and statement of the problem sections. The introduction provides background on financial distress research and defines financial distress. The literature review covers liability management theory and shiftability theory of liquidity. The statement of the problem discusses previous related studies and notes that no significant studies have examined which market ratios are most effective at predicting financial distress in Kenyan listed companies.
An examination of actual fraud cases with a focus on the auditor’s responsibi...Jesper Seehausen
This working paper examines actual fraud cases involving auditors in Denmark from 1909-2006 to understand the evolution of auditors' responsibilities related to fraud. The paper analyzes how court rulings and professional organizations in Denmark have established auditors' duties to detect potential fraud situations and respond appropriately. The analysis finds that auditors have never been criticized solely for failing to detect fraud, but rather for deficiencies in their audit work or failures to communicate issues. Over time, courts now consider fraud a normal business risk for which auditors must be proactively responsible in planning and conducting audits.
Establishing the effectiveness of market ratios in predicting financial distr...oircjournals
This document is a research paper from the International Journal of Finance, Accounting and Economics that examines the effectiveness of market ratios in predicting financial distress among listed firms in Kenya. It provides background on financial distress research and discusses liability management theory and shiftability theory of liquidity as relevant frameworks. The paper aims to determine which market ratios are most statistically effective in predicting financial distress using data from 2011-2015 on the 62 listed companies in the Nairobi Securities Exchange.
Legislators continue to question auditors' responsibility in evaluating companies' ability to continue as a going concern. The document discusses the historical background of the going concern assumption in accounting and auditing standards. It outlines criticism of the assumption for implying indefinite life and lack of conservatism. It also criticizes prior auditing standards for inconsistently identifying companies in financial distress, allowing auditor flexibility and bias. The author proposes new guidelines in SAS 59 to more proactively evaluate going concern and limit litigation risks.
Legislators continue to question auditors' responsibility in evaluating companies' ability to continue as a going concern. The document discusses the historical background of the going concern assumption in accounting and auditing standards. It outlines criticism of the assumption for implying indefinite life and not being conservative enough. It also criticizes prior auditing standards for inconsistencies in issuing going concern qualifications and the flexibility that allowed auditor bias. The author proposes new guidelines to better evaluate going concerns and limit litigation risks.
This document discusses the risks associated with derivative transactions and the impact of regulation in limiting these risks. It analyzes price risk, default risk, and systemic risk in derivatives markets. The document argues that default risk has been exaggerated and misunderstood. It claims that systemic risk simply aggregates individual default risks, which are lower than assumed due to the nature of derivatives. The document also discusses "agency risk" arising from compensation structures that can encourage excessive risk taking.
This document summarizes a study on the linkage between systemic risk and rate of return, and the impact of regulations on systemic risk. It defines systemic risk and discusses various ways it can be measured. It then outlines regulations introduced by Basel I, II, and III to reduce systemic risk, including increased capital requirements and liquidity ratios. The document analyzes how management of systemic risk through regulation can affect financial institution profitability and rates of return, finding that completely eliminating systemic risk is impractical as it may hinder economic growth.
The authors analyze a large stratified random sample of firms that provided them with measures of performance and each firm’s top manager’s perception of the severity of business environment constraints faced by his/her firm. Unlike most existing studies that rely on external and aggregated proxy measures of the business environment, defined to include legal and institutional features, the authors have information from each surveyed firm.
The authors find that foreign ownership and competition have an impact on performance – measured as the level of sales controlling for inputs. Export orientation of the firm does not have an effect on performance once ownership is taken into account. When analyzing the impact of perceived constraints, they show that few retain explanatory power once they are introduced jointly rather than one at a time, or when country, industry and year fixed effects are introduced. Indeed, country fixed effects largely absorb the explanatory power of the constraints faced by individual firms. Replicating the analysis with commonly used country-level indicators of the business environment, they do not find much of a relationship between constraints and performance.
Authored by: Simon Commander, Jan Svejnar
Published in 2007
Communiqué features articles focusing on the latest hot topics for anesthesiologists, nurse anesthetists, pain management specialists and anesthesia practice administrators.
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1) The document discusses derivatives flock case risk and its effect on market sectors. It focuses on how ignorance in derivative pricing can lead speculators to follow false demand, known as flock case.
2) Flock case can negatively affect market sectors by directing production and demand away from real needs towards imagined demand based on speculation. This can misallocate resources and potentially reduce profits.
3) Derivatives markets are also interconnected with currency exchange, stock prices, commodity prices, and interest rates. Failure in derivatives markets can therefore transmit risk throughout the financial system and broader economy.
You will submit a 1-2 page double spaced paper, plus references, des.docxjustine1simpson78276
This 1-2 page paper is due on 6/30 and requires describing an organism through its cellular morphology, metabolic activities, growth niche, and any virulence factors. The paper and in-class presentation should explain how these attributes allow the organism to persist.
you will submit a 150-200 word reading summary -Reasons for the .docxjustine1simpson78276
you will submit a 150-200 word reading summary
-Reasons for the way things are.
-Confussion about the story of reality
-What is christianity
-4 elements of every world view: where we come from? what is our problem? what is the solution?
Restoration
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Similar to Andersen implosion over Enronan analysis of the contagion e.docx
The document discusses the significance of the Sarbanes-Oxley Act of 2002, which was enacted in response to several major corporate and accounting scandals in the early 2000s including Enron. It describes how Enron misstated expenses, used mark-to-market accounting to overstate asset values, and created fake partnerships to hide losses. This led to Enron's bankruptcy. The Sarbanes-Oxley Act aimed to restore investor confidence by strengthening corporate responsibility and financial disclosure standards. Key provisions included CEO/CFO certification of financial reports and increased regulation of accounting practices and auditors.
Exposure to financial distress in businesses adversely affects the groups related to the business and
the general economic structure. Financial distress, which is one of the most important research topics in the
recent finance literature, has always been important in economies with high cyclical fluctuations such as Turkey
and has turned into an area where intensive studies are carried out
The Enron scandal involved accounting fraud at the energy company Enron. Enron used mark-to-market accounting to recognize future profits from long-term energy contracts before they were realized. They also used special purpose entities to hide debts and losses. This allowed Enron to misrepresent its financial performance and hide its true financial situation. When the fraud was uncovered, Enron collapsed and filed for bankruptcy in 2001, costing investors and employees billions and changing accounting practices.
Effect of Leverage on Expected Stock Returns and Size of the FirmAakash Kumar
This document presents a study on the effect of leverage on expected stock returns and firm size for companies listed on the KSE100 index in Pakistan. It reviews previous literature that has found mixed results on the relationship between leverage and various performance measures. The study uses linear regression to analyze the impact of leverage on earnings-to-price ratio as a proxy for expected stock returns and market value as a proxy for firm size. Preliminary results are presented along with conclusions and recommendations for further study.
Corporate Governance Lessons from EnronOghale Enuku
The document discusses the Enron scandal and the resulting reforms. It analyzes Enron's risk management failures and ethical shortcomings like conflicts of interest between executives and accounting firms. While the Sarbanes-Oxley Act addressed disclosure and certification requirements, the document argues the reforms did not fully address the root causes of Enron's collapse related to negligence of risk management and misconduct. This is evidenced by later financial crises still exhibiting corporate governance failures despite the reforms. In conclusion, the document states Enron's board failed to properly monitor executives and the true issue remains a lack of ethics, not rules and regulations.
This document discusses various instances of professional malpractice in different fields such as medicine, accounting, auditing, lending, and business ethics. It provides examples of large corporate accounting scandals like Enron and WorldCom where companies misrepresented their financial situations. New regulations and stricter enforcement are being implemented to curb malpractice and improve integrity in financial reporting and other professions.
This document provides an overview of the key elements relevant to analyzing and measuring economic damages in a judicial action. It discusses the goals of economic damages awards to compensate the damaged party and deter wrongful acts. It then covers various legal standards like causation, certainty, and mitigation. It also defines the types of courts, claims, and remedies involved in a judicial action. The document aims to help damages analysts understand the legal context and select appropriate damages measurement methods.
This document provides an overview of the key elements relevant to analyzing and measuring economic damages in a judicial action. It discusses the goals of economic damages awards to compensate the damaged party and deter wrongful acts. It then covers various legal standards like causation, certainty, and mitigation. It also defines the types of courts, claims, and remedies involved in a judicial action. The document aims to help damages analysts understand the legal context and select appropriate damages measurement methods.
Running head AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFO.docxjoellemurphey
Running head: AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
An Empirical Study on Accounting and Auditing Enforcement Releases Cases
Xin Tan
Southeast Missouri State University
Author Note
This paper was submitted in partial fulfillment of the requirements of the degree of Masters in Business Administration
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
31
Abstract
The objective of the paper is to provide an empirical study about the characteristics of accounting fraud and fraudulent financial reporting occurrences, including violation length, industry, audit tenure and violation types. To do so, I collected Accounting and Auditing Enforcement Releases (AAERs) issued by the Securities and Exchange Commission (SEC) for accounting fraud committed by companies during 2009-2011, which provides a fraud sample consisting of 66 companies. I analyzed each incident and explore key company characteristics in instances of fraudulent reporting in AAERs.
APPLIED RESEARCH ACCEPTANCE SHEET
An Empirical Study on Accounting and Auditing Enforcement Releases Cases
Submitted by Xin Tan in partial fulfillment of the requirements for the degree of Masters in Business Administration.
Accepted on behalf of the Faculty of the School of Graduate Studies and Research by the Applied Research Project Committee.
(Date)
Advisor/Chair (Name,Ph.D.)
______________________________ (Date)
MBA Coordinator (Name, Ph.D.)
CONTENTS
ABSTRACT.............................................................. .............................. ……………. i
ACCEPTANCE PAGE.............................................. ………………… ii
CONTENTS....................................... …………....................................... …………iii
INTRODUCTION…………………………………………………….…...1
LITERATURE REVIEW……………………………………………….....3
METHOD…………………………………………………….……………… 4
RESEARCH DESIGN AND RESULT………………………………...… 5
CONCLUSION………………………………………………………….....15
LIMITATION…………………………………………………..... .... …...... 16
REFERENCES…………………………………………………………. …18
APPENDIX …………………………………………………………. ……. 20
I. Introduction
While the United States experienced an unprecedented storm of accounting fraud, like Enron and WorldCom, around the beginning of twenty-first century, it is still unclear to what extent the typical fraud profile has changed in recent years. In the last decade, the accounting industry has made a variety of legislative and regulatory changes because of accounting fraud, such as the Sarbanes-Oxley Act of 2002. This act was enacted as a reaction to major accounting scandals and it enhanced standards for all U.S. public companies boards, management and public accounting firms. Fraudulent financial reporting can have significant consequences for companies, stockholde ...
SEC Enforcement Actions Premium Paper Help.docxwrite12
The document discusses SEC Accounting and Auditing Enforcement Releases (AAERs), which describe violations of securities laws. The SEC's Division of Enforcement investigates possible violations, compels production of documents, and presents findings to the SEC for review. Academics have used AAERs as case studies in auditing courses and as data to study issues like earnings management. One study found nearly 300 alleged fraudulent financial reporting cases by examining AAERs from 1987 to 1997.
This document is a research paper from the International Journal of Finance, Accounting and Economics that examines the effectiveness of market ratios in predicting financial distress among listed firms in Kenya. The paper includes an abstract, introduction, literature review, and statement of the problem sections. The introduction provides background on financial distress research and defines financial distress. The literature review covers liability management theory and shiftability theory of liquidity. The statement of the problem discusses previous related studies and notes that no significant studies have examined which market ratios are most effective at predicting financial distress in Kenyan listed companies.
An examination of actual fraud cases with a focus on the auditor’s responsibi...Jesper Seehausen
This working paper examines actual fraud cases involving auditors in Denmark from 1909-2006 to understand the evolution of auditors' responsibilities related to fraud. The paper analyzes how court rulings and professional organizations in Denmark have established auditors' duties to detect potential fraud situations and respond appropriately. The analysis finds that auditors have never been criticized solely for failing to detect fraud, but rather for deficiencies in their audit work or failures to communicate issues. Over time, courts now consider fraud a normal business risk for which auditors must be proactively responsible in planning and conducting audits.
Establishing the effectiveness of market ratios in predicting financial distr...oircjournals
This document is a research paper from the International Journal of Finance, Accounting and Economics that examines the effectiveness of market ratios in predicting financial distress among listed firms in Kenya. It provides background on financial distress research and discusses liability management theory and shiftability theory of liquidity as relevant frameworks. The paper aims to determine which market ratios are most statistically effective in predicting financial distress using data from 2011-2015 on the 62 listed companies in the Nairobi Securities Exchange.
Legislators continue to question auditors' responsibility in evaluating companies' ability to continue as a going concern. The document discusses the historical background of the going concern assumption in accounting and auditing standards. It outlines criticism of the assumption for implying indefinite life and lack of conservatism. It also criticizes prior auditing standards for inconsistently identifying companies in financial distress, allowing auditor flexibility and bias. The author proposes new guidelines in SAS 59 to more proactively evaluate going concern and limit litigation risks.
Legislators continue to question auditors' responsibility in evaluating companies' ability to continue as a going concern. The document discusses the historical background of the going concern assumption in accounting and auditing standards. It outlines criticism of the assumption for implying indefinite life and not being conservative enough. It also criticizes prior auditing standards for inconsistencies in issuing going concern qualifications and the flexibility that allowed auditor bias. The author proposes new guidelines to better evaluate going concerns and limit litigation risks.
This document discusses the risks associated with derivative transactions and the impact of regulation in limiting these risks. It analyzes price risk, default risk, and systemic risk in derivatives markets. The document argues that default risk has been exaggerated and misunderstood. It claims that systemic risk simply aggregates individual default risks, which are lower than assumed due to the nature of derivatives. The document also discusses "agency risk" arising from compensation structures that can encourage excessive risk taking.
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The authors analyze a large stratified random sample of firms that provided them with measures of performance and each firm’s top manager’s perception of the severity of business environment constraints faced by his/her firm. Unlike most existing studies that rely on external and aggregated proxy measures of the business environment, defined to include legal and institutional features, the authors have information from each surveyed firm.
The authors find that foreign ownership and competition have an impact on performance – measured as the level of sales controlling for inputs. Export orientation of the firm does not have an effect on performance once ownership is taken into account. When analyzing the impact of perceived constraints, they show that few retain explanatory power once they are introduced jointly rather than one at a time, or when country, industry and year fixed effects are introduced. Indeed, country fixed effects largely absorb the explanatory power of the constraints faced by individual firms. Replicating the analysis with commonly used country-level indicators of the business environment, they do not find much of a relationship between constraints and performance.
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1) The document discusses derivatives flock case risk and its effect on market sectors. It focuses on how ignorance in derivative pricing can lead speculators to follow false demand, known as flock case.
2) Flock case can negatively affect market sectors by directing production and demand away from real needs towards imagined demand based on speculation. This can misallocate resources and potentially reduce profits.
3) Derivatives markets are also interconnected with currency exchange, stock prices, commodity prices, and interest rates. Failure in derivatives markets can therefore transmit risk throughout the financial system and broader economy.
Similar to Andersen implosion over Enronan analysis of the contagion e.docx (20)
You will submit a 1-2 page double spaced paper, plus references, des.docxjustine1simpson78276
This 1-2 page paper is due on 6/30 and requires describing an organism through its cellular morphology, metabolic activities, growth niche, and any virulence factors. The paper and in-class presentation should explain how these attributes allow the organism to persist.
you will submit a 150-200 word reading summary -Reasons for the .docxjustine1simpson78276
you will submit a 150-200 word reading summary
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Restoration
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You will submit a 1500 word fully-referenced critical essay .docxjustine1simpson78276
You will submit a 1500 word
fully-referenced
critical essay which will DISCUSS ONE of the following:
a) Journalism is an expression of the culture in which it resides.
b) The decline of the foreign correspondent.
c) Does the West continue to dominate global news flow?
d) Asian values in journalism and its impact across the Asia-Pacific region.
e) The challenges for African journalism in the 21st century.
f) Compare and contrast development journalism in Asia and Africa.
g) The Pacific journalist – tradition versus freedom of expression.
h) The challenges for investigative journalism in Eastern Europe.
i) The clash of civilisation and its influence on US journalism.
j) The framing of Africa by western journalists.
k) Freedom of expression vs democracy in Latin America.
l) The decline of US newspapers and what it means for democracy.
m) Is peace journalism possible?
n)
OR a statement you design based on your studies which has received prior approval from your tutor at least TWO weeks before due date
.
Your assignment will be assessed according to the criteria sheet at the end of the Subject Outline. You are encouraged to self-assess your work by submitting a copy of this assessment criteria sheet with your assignment.
Length: 1500 words
Due: Friday of Week 14
.
you will submit a 150-200 word reading summary The story of real.docxjustine1simpson78276
you will submit a 150-200 word reading summary
The story of reality
What does it mean whether or not the Christian story is the truth about the world.
The blind men and the Elephant
Two applications: religious and skeptical
Three problems: contraction claims, story teller, a talking elephant.
Christians have a problem with the evil.
The problem of a narrow way.
God, Jesus, Men, Resurrection
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You will select an enterprise-level risks that impact an organizatio.docxjustine1simpson78276
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• Here’s the approach you can take for this paper:
Title page (ensure team members and IDs are listed)
Introduction – provide a background of the selected organization.
Risk #1
Description
Impact on organization
Recommendation on how to manage it
Risk #2
Description
Impact on organization
Recommendation on how to manage it
Risk #3
Description
Impact on organization
Recommendation on how to manage it
Conclusion
References (minimum of 8 reputable sources)
Appendix (if any)
The paper will range from 15-pages includes title page, content, and references.
Please write in APA Style.
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You will select a psychologist (Skinner or Freud ) and conduct a bri.docxjustine1simpson78276
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You will select a hot button issue from current or relatively re.docxjustine1simpson78276
You will select a hot button issue from current or relatively recent events and examine the ways it (was) being covered by various media outlets. Once you select your topic you must obtain a representative sample of how the topic is being discussed in major outlets of the Conservative, Liberal, and Non-partisan media as well as how it is being discussed on the media. The website
www.allslides.com
will assist you in determining the political views of various media outlets. The components of your project are listed below:
1. A representative sample of how the topic is being discussed in the Conservative (right wing) media:
a. 1 short video clip from a major conservative cable news outlet (e.g. Fox News)
b. 1 example from a major conservative web site (e.g. The Heritage Fondation)
c. 1 example from a major liberal magazine or newspaper (e.g. The National Review / The New York Post)
2. A representative sample of how the topic is being discussed in the Liberal / Progressive (left wing) media:
a. 1 short video clip from a major liberal cable news outlet (e.g. MSNBC)
b. 1 example from a major liberal web site (e.g. thinkprogress.org)
c. 1 example from a major liberal magazine or newspaper (e.g. Mother Jones / The New York Times)
3. A representative sample of how the topic is being discussed in the Center / Non-partisan / Mainstream media:
a. 1 short video clip from a major mainstream news outlet (e.g. ABC, CBS, NBC, CNN)
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c. 1 example from a major mainstream magazine or newspaper (e.g. Time / USA Today)
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Based on your research, do the following:
Identify a minimum of three different natural phenomena that are typically responsible for natural disasters. Analyze the potential impact of these disasters.
Analyze how these phenomenon are monitored, or not, via the Internet. Critique available Web sites, which publicly display up-to-date monitored information related to each of the natural phenomena you have identified. Focus on the following aspects:
Geography
What parts of the world are potentially affected by these phenomena? Specifically identify the countries.
Resources
What kinds of resources are allocated toward monitoring these phenomena and why?
What types of Web resources monitor the phenomena and provide up-to-date information about them?
What kinds of technology are involved in monitoring the phenomena?
Politics
What political ramifications would this disaster-preparedness technology cause between more-developed countries and less-developed countries?
What kinds of issues could this technology cause between less-developed countries?
Economics
How would this technology directly impact the economies of those countries that have the technology versus those countries that do not?
Do you predict any indirect impacts? What current evidence supports your position?
Disaster Preparedness
What types of systems are in place in terms of disaster preparedness related to these monitored phenomena?
Summarize your findings. Evaluate how this technology will impact the future of humanity, both positively and negatively. Be sure to consider the political and economic issues discussed in your future predictions.
Support your statements with examples. Use a minimum of six reliable references, two of which should be peer-reviewed articles.
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You will review qualitative research. The topic is up to you as lon.docxjustine1simpson78276
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Please use APA formatting and include the following information:
Introduction/Background: Provide context for the research article. What led the author(s) to write the piece? What key concepts were explored? Were there weaknesses in prior research that led the author to the current hypothesis or research question?
Methodology: Describe how the data was gathered and analyzed. What research questions or hypotheses were the researcher trying to explore? What statistical analysis was used?
Study Findings and Results: What were the major findings from the study? Were there any limitations?
Conclusions: Evaluate the article in terms of significance, research methods, readability and the implications of the results. Does the piece lead into further study? Are there different methods you would have chosen based on what you read? What are the strengths and weaknesses of the article in terms of statistical analysis and application? (This is where a large part of the rubric is covered.)
References
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You will review quantitative research. The topic is up to you as lo.docxjustine1simpson78276
You will review quantitative research. The topic is up to you as long as you choose a peer-reviewed, academic research piece. There are no hard word counts or page requirements as long as you cover the basic guidelines. You must submit original work, however, and a paper that returns as a large percentage of copy/paste to other sources will not be accepted. (Safe Assign will be used to track/monitor your submission for plagiarism.)
Please use APA formatting and include the following information:
Introduction/Background: Provide context for the research article. What led the author(s) to write the piece? What key concepts were explored? Were there weaknesses in prior research that led the author to the current hypothesis or research question?
Methodology: Describe how the data was gathered and analyzed. What research questions or hypotheses were the researcher trying to explore? What statistical analysis was used?
Study Findings and Results: What were the major findings from the study? Were there any limitations?
Conclusions: Evaluate the article in terms of significance, research methods, readability and the implications of the results. Does the piece lead into further study? Are there different methods you would have chosen based on what you read? What are the strengths and weaknesses of the article in terms of statistical analysis and application? (This is where a large part of the rubric is covered.)
References
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You will research one womens movement that we have not discussed in.docxjustine1simpson78276
You will research one women's movement that we have not discussed in class. Include prominent leaders, prominent issues, challenge to the movement, outcomes of the movement and background information such as how the movement originated. This part must be
at least 1 page
in length and have
3 sources
cited related to your chosen movement. Make sure that they are "academic sources." That means, no wikipedia or other unverified sources. I will deduct MAJOR points for missing citations as it constitutes plagiarism! Include your citations after each essay.
.
You will research a Native American or African communitys culture, .docxjustine1simpson78276
The document provides instructions for a research project on the cultural and religious traditions of a Native American or African community. Students are asked to:
1) Research the oral traditions, religious texts, history, and current beliefs of a Native American or African community. They should interview an expert from that community if possible.
2) Create a 15-20 slide presentation addressing: the community's historical religious beliefs and practices; how those beliefs have been influenced by surrounding cultures; current religious beliefs and their role in daily life; and elements of the tradition a Christian would need to consider when sharing their faith.
3) The presentation should also evaluate the impact of American/European policies on the community's beliefs over time and how future
You will receive 15 points extra credit (added to the homework p.docxjustine1simpson78276
You will receive 15 points extra credit (added to the homework portion of your grade) for locating and submitting a summary of a legal news article that was (1) published within the preceding year and (2) that
is relevant to one of the topics that we have previously covered in the course
(e.g., Torts, Contracts, Constitutional Law, Franchising, etc.). You may find appropriate legal news articles at findlaw.com, on the websites of many news organizations (i.e., the Associated Press, Reuters, the Los Angeles Times, NBC News, etc.), or from any other
reputable
online or print sources.
Your summary must:
Discuss facts of the legal news story
Explain how the news story relates to a topic previously discussed in class, and
Either attach a copy of the new story or provide a functioning link to the article online that will allow me to easily find it.
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You will provide a short analysis of the interaction of group member.docxjustine1simpson78276
You will provide a short analysis of the interaction of group members that you observe in action. For example, You could go to a county courthouse to watch a celebrity's trial, or you could watch Court TV and follow the proceedings there. After you have completed your observation, write a short critique of what you have observed.
Briefly describe what group meeting you observed as well as where and when the meeting took place. [For example, "I observed the Killeen City Council meeting on October 1, 2015 at Killeen City Hall.]
What organizational plan was employed? [For example, Parliamentary Procedure was employed with the reading of the minutes, old business, new business, etc.]
How were the decisions made? [For example, majority rule, consensus, leader-dictated, etc.]
How was information about topics gathered? [For example, research was provided by group members, research was provided by staff or outsiders, or testimony was provided, etc]
Was there a formal designated leader? Did certain members seem to play particular roles and assume specific responsibilities? [For example, the Mayor was the leader of the City Council.]
Were there conflicts or disagreements between group members and/or outsiders and how were they resolved? [For example, some council members wanted to annex property into the city limits, while some other council members as well as the citizens testifying, were opposed. The council decided to discuss the issue in executive session.]
Did the group tend to digress (get off the topic)? Did someone get them back to the subject, and if so, who did so?
Did the group seem thorough and complete in its treatment of the subjects that it addressed?
Were the group members clear in expressing themselves by phrasing their ideas carefully and by presenting their ideas in a vivid manner?
Would you personally feel comfortable addressing this group? Why or why not? Explain.
.
You will produce and submit a Powerpoint of screenshots related to .docxjustine1simpson78276
You will create a PowerPoint presentation with screenshots from using a digital forensics tool to capture data. The presentation must include at least 2 screenshots of installing and setting up the tool, 4 screenshots of capturing data with the tool, and 3 screenshots of reports generated from the captured data.
You will produce a clear and coherent writing that is well organized.docxjustine1simpson78276
You will produce a clear and coherent writing that is well organized and edited. After reading and watching S.E. Hinton's "The Outsiders" and "Fences" by August Wilson.
In 350 words or more analyze the impact of the social norms of the 1950’s on the development of theme and character in both Fences and The Outsiders. Use at least two pieces of evidence to support your thinking. Make sure to cite correctly using MLA format. 16 points
Use this sentence format below (fill in the blank, but be clear on what you type):
The 1950’s were a turbulent time in American history. The nation was rapidly changing as were American values.[Three events that happened in the 1950’s that shaped American values]. Although this time is often thought of as a period of prosperity not every American benefited during that decade. In fact two texts written much later would utilize those tensions in a subtle way, to explore the ideas of ___Topic #1____ and ____Topic #2__.
Both The Outsiders and Fences deal with the topics of ____ and ____ by showing the development of their characters and build their themes through their actions and interactions.
Although both stories take place in different parts of America and deal with different ethnic groups they resoundingly share the same theme that in order for a family to stay together they must be willing to change and sacrifice
. A moment in __Title of text_____ that demonstrates this is when [Context for your evidence]“[Textual evidence” this [Analysis of text] (Citation). Similarly in ___Title & author____ there is a moment that _[synonym for displays]___ this theme when [Context for textual evidence].“[Textual evidence to support your claim” ]which shows [Analysis of textual evidence] (Citation). In addition this reinforces the social norm of the time that [Social norm shown in textual evidence].
On the other hand there are subtle differences between the texts when it comes to the topic of ___Topic #3___. In _Tiltle of text__ __Topic #3___ [claim about topic #3]. It is made clear to the reader that[claim about the differences between the text].[Contextualize the differences with an example]. [Reasoning for the different view on the topic]. The fierce 50’s are more than a half a century behind us but the themes and culture that emerged during that time can still be seen today.
.
You will present ADP and Paychex as the recommendations to the VP .docxjustine1simpson78276
You will present ADP and Paychex as the recommendations to the VP of the company. The assignment is to explain the following
1.How will they provide Payroll processing with a HR Integration Interface
2.How will they provide an appropriate report generation feature with both custom reporting and standard reporting features
.
You will prepare and present a personality analysis of your choo.docxjustine1simpson78276
You will prepare and present a personality analysis of your choosing. In 10-12 slides, address the following questions.
Choose a person to analyze. This can be a historical figure, a famous person (politician, celebrity, musician), or a fictional character from a book or other media. Just be sure you have enough information on this person’s personality and background to fully analyze them.
Describe this person’s personality in detail using language and concepts from the humanistic perspective.
Analyze this person from both Abraham Maslow’s humanistic perspective and Carl Rogers’s humanistic perspective. In other words, explain how this person’s personality would be described by each of those theorists. Explain how their personality developed the way it did, from Maslow's and Rogers’s perspectives.
If the person you described experiences psychological issues or psychopathology, explain how humanistic theory can be used to restore a state of health and psychological well-being to the person. In other words, if they suffer from anxiety, depression or other disorders, how would humanistic theorists like Maslow and Rogers help them overcome those disorders?
Include speaker notes below each content-related slide that represent what would be said if giving the presentation in person. Expand upon the information included in the slide and do not simply restate it. Please ensure the speaker notes include 50-75 words per slide.
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you will prepare a PowerPoint presentation on the consumer infor.docxjustine1simpson78276
you will prepare a PowerPoint presentation on the consumer informatics pillar of health informatics including the e-patient movement (i.e., the widespread use of the Internet or other technologies that allows patients to have more participation in their medical care) and the Personal Health Record (PHR). Creating this week’s presentation will give you the opportunity to explore how participatory health care informatics is shaping patient-centered models of care.
Create your PowerPoint presentation with speaker notes that critically address each of the following elements. (Remember that your presentation slides should have short, bullet-pointed text with your speaker notes including the bulk of the information provided in the following list.)
Interpret the definition of consumer health informatics from national sources such as the Agency for Healthcare Research and Quality (AHRQ), the American Medical Informatics Association (AMIA), etc.
Compare and contrast the roles of patient, consumer, caregiver, and professional in consumer informatics.
Analyze health literacy’s role in the success of consumer informatics.
Analyze the role of the e-patient movement and the PHR in effecting health care change.
Examine how participatory health care informatics is shaping patient-centered models of care.
Compare and contrast two examples of consumer informatics applications of your choosing. (Examples could be those found on the Internet or those you’ve encountered in your personal life.)
You may wish to include visual enhancements in your presentation. These may include appropriate images, a consistent font, appropriate animations, and transitions from content piece to content piece and slide to slide.
Must be five to seven slides with speaker notes (not including the title and references slides) and formatted according to APA style
Must use at least three scholarly sources in addition to the course text.
Must include a separate references slide that is formatted according to APA style
Due Saturday 11/7/2020
.
You will post a 250-word reply to 2 classmate’s threads. The reply r.docxjustine1simpson78276
You will post a 250-word reply to 2 classmate’s threads. The reply requires a minimum of 1 properly formatted citation. Each reply must be completed by you, the individual student. Additionally, each thread and reply must reflect a solid Christian worldview through the use of at least 1 Holy Bible reference.
EUGENE
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Andersen implosion over Enronan analysis of the contagion e.docx
1. Andersen implosion over Enron:
an analysis of the contagion effect
on Fortune 500 firms
Joann Noe Cross
Department of Accounting, University of Wisconsin Oshkosh,
Oshkosh, Wisconsin, USA, and
Robert A. Kunkel
Department of Finance & Business Law, University of
Wisconsin Oshkosh,
Oshkosh, Wisconsin, USA
Abstract
Purpose – The purpose of this paper is to examine how the
Andersen implosion over Enron
impacted Fortune 500 firms that were competitors of Enron
and/or audited by Andersen. This event
provides an opportunity to study various contagion effects.
Design/methodology/approach – An event study methodology is
used to analyze the immediate
financial impact of the Andersen implosion on competitors of
Enron and/or firms audited by
Andersen. More specifically, how did the announcement of the
implosion impact these firms?
Findings – The results support a strong industry contagion
effect where Enron’s failure benefited
2. the surviving energy/utility firms who could then increase their
market shares. The authors find the
energy/utility firms not audited by Andersen, on average,
experienced an astounding 2.5 percent
increase in market capitalization when the audit scandal was
announced. In dollar terms, the mean and
median market capitalization increases were $226 million and
$101 million, respectively. In the
aggregate, the 21 utility/energy firms gained $4.76 billion in
market capitalization.
Research limitations/implications – The results show the
importance of the auditing process and
the impact of unethical actions on the firm, their auditor, and
their competitors. One limitation is the
data are limited to large Fortune 500 firms.
Originality/value – This is the first study, to the authors’
knowledge, that evaluates the contagion
effect of the Andersen/Enron audit scandal on Fortune 500
firms: in the same industry as Enron;
audited by Andersen; and operating in the same industry as
Enron and audited by Andersen.
Keywords United States of America, Financial reporting,
Auditing, Energy industry, Banruptcy,
Andersen, Enron, Contagion effect, Fortune 500, Event study
Paper type Research paper
1. Introduction
The whole duty of an auditor may be summed up in a very few
words – it is that of verifying
balance sheets (Accountant, editorial, April 23, 1881 as quoted
in Chambers (1995, p. 81)).
3. [A]uditing, as carried on under the present system, is of no
practical concern as evidence of
the true financial position of a company [. . .] auditors’
certificates [. . .] merely certify that the
balance sheet is correctly copied from the books, sometimes
with the addition that the
auditors have counted the cash and inspected the bill case and
the security box. Audits under
such conditions are a delusion and a snare (Vanity Fair, October
6, 1883 as quoted in
Chambers (1995, p. 94)).
The current issue and full text archive of this journal is
available at
www.emeraldinsight.com/0307-4358.htm
MF
38,7
678
Managerial Finance
Vol. 38 No. 7, 2012
pp. 678-688
q Emerald Group Publishing Limited
0307-4358
DOI 10.1108/03074351211233131
Fundamentally, an audit is viewed as a process of obtaining
evidence that the
statements made by management about the financial facts of
their business are true.
4. Indeed, as early as 1895, Worthington, in a description of the
new field of professional
accounting, writes that the manager who (Parker, 1986):
[. . .] fails to adopt this wise precaution against fraud and
embezzlement is frequently running
as great a risk as he would do in failing to insure his stock
against the ravages of fire (Parker 31).
What then do auditors do? Auditors gather evidence to support
the assumption that
financial statements “fairly” (a different assumption than
“accurately”) reflect the
activities and current status of the firm. The evidence can be
collected by various activities
such as examining source documents, observing the counting of
inventory, talking to
members of management and other staff, and obtaining
confirmation of transactions from
outside the organization. In most cases, the audit also involves
making sure those policies
within a firm designed to insure proper reporting of its
activities are in place and being
followed.
The confusion that arises is in the definition of “true picture”.
In essence there are
alternative definitions of “true” varying from fairness (which is
what auditors believe)
to accuracy (which auditors do not claim, but which investors
assume). When the
management of a Securities Exchange Commission regulated
firm issues a report that
is believed to be other than a true picture of that firm, investors
leap to sue whomever
they can to limit their potential losses. It is, then, within the
5. courts that the difference
between fair and accurate becomes debated and decided as in
the case of the public
accounting firm Andersen.
Our study analyzes the contagion effect of the Andersen
implosion over Enron on
Fortune 500 firms:
. operating in the same industry as Enron – an industry
contagion effect;
. audited by Andersen – an auditor contagion effect; and
. operating in the same industry as Enron and audited by
Andersen – an
industry/auditor contagion effect.
Regarding the industry contagion effect, did the market view
the implosion as negative
whereas Enron competitors may have undertaken similar
operations, or as positive in
that Enron’s likely bankruptcy would enable competitors to gain
market share?
Regarding the auditor contagion effect, did the market view the
implosion as negative in
that other Andersen audited firms may have audit problems
similar to Enron’s?
Regarding the industry/auditor contagion effect, did the market
view the implosion as
negative whereas Enron competitors audited by Andersen may
have not only
undertaken operations similar to those of Enron, but also have
audit problems similar to
Enron’s?
6. 2. Background
2.1 Literature review
Aharony and Swary (1983) in their seminal paper examined the
contagion effects of
three prominent bank failures on the banking industry using an
event study model.
Two of the three banks suffered from activities specific to the
bank. For example, one
bank failure was due to fraud and internal irregularities while
the other bank failure
was due to illegal channeling of loans from a subsidiary to the
bank which was an
Andersen
implosion
over Enron
679
activity specific to the bank. They concluded that if the
bankruptcy was due to events
specific to the affected bank, then there was no contagion
effect. However, if the events
were associated with problems that were correlated across all
banks in the industry,
then a negative contagion effect could be expected. In this case
the bank failure was
due to large losses related to risky foreign exchange
transactions. Since many banks
also engaged in risky foreign exchange transactions, the market
assumed those banks
may likely suffer large losses.
7. Lang and Stulz (1992) study a sample of 59 bankruptcies in 41
industries and found
that bankruptcy announcements could have both a positive and a
negative effect
on competitors’ equity. They found that bankruptcies have
moderate contagion effect on
competitors in the same industry. Furthermore, the impact
increases with stronger
competition, higher industry leverage, and similarity of cash
flow characteristics
between the failed firm and competitors. In general, they found
a negative contagion
effect with a 2.87 percent decline in market capitalization in
highly leveraged industries,
while the impact for low leveraged industries was slightly
positive. Competitors with
high leverage and a high degree of competition had a 3.2
percent decline in market
capitalization as a response to bankruptcy in their industry.
They also found a
significant competitive effect where both leverage and the
degree of competition are low.
Fenn and Cole (1994) studied the contagion effect associated
with announcements of
asset write-downs by two life insurance companies in 1990 by
examining the impact on
54 competing insurance companies. They found evidence of a
significant contagion
effect for companies with an asset composition similar to that of
the announcing firm.
The results also supported the hypothesis that investors are
relatively uninformed
regarding the asset composition of life insurance companies due
to high monitoring
costs, but that an announcement of asset restructuring leads the
8. market to reevaluate
the asset composition of all insurance companies.
Cheng and McDonald (1996) studied seven airline and five
railroad industry
bankruptcy announcements between 1962 and 1991. They found
a competitive effect
in the airline industry with an abnormal return of 2.80 percent
and a contagion effect in
the railroad industry with an abnormal return of 20.59 percent.
These results conclude
the industry’s market structure will determine the bankruptcy
announcement’s impact
on the stock prices of the surviving firms. For example, the
positive competitive effects
in the airline industry can be attributed the failure of one firm
gives more market
power to the competitors.
Polonchek and Miller (1999) examined the effect of 69 equity
offerings by insurance
companies between 1977 and 1993. They conclude that equity
offerings are market
indicators of management belief that the company’s stock is
overvalued. As such, the
offerings reveal information about the quality of both the
announcing firm’s portfolio
and the quality of rival firms’ portfolios. Therefore, the market
is induced to draw
inferences about the future prospects of the entire industry.
Chaney and Philipich (2002) use an event study methodology to
study 284 of the 287
Andersen clients included in the S&P 1500 to examine the stock
market reaction to
various events surrounding Andersen’s Enron audit. They
9. employ a market model to
calculate abnormal returns and examine four event windows
ranging from two days to
four days. The first event window is November 8, 2001 when
Enron announces
restatements. They find other clients of Andersen experience a
mean cumulative
abnormal return (CAR) of þ0.94 percent over the four-day event
window surrounding
MF
38,7
680
the restatement of Enron’s earnings. This suggests there was no
downgrading of other
companies audited by Andersen and this was treated as an
isolated event. The third
event window is January 10, 2002 when Andersen announces
documents were shredded.
Contrary to the first event, they find other Andersen clients
experience a statistically
negative mean CAR of 22.10 percent over the four-day event
window surrounding
Andersen’s admission. This suggests that investors downgraded
companies audited by
Andersen on the basis of a decline in the perceived quality of
the Andersen audits.
Barton (2005) examined the defections of Andersen’s clients
after the Enron
bankruptcy case in order to determine whether firms act upon
changes in an audit firm’s
10. public reputation. They reviewed the defection rate of 1,229
Andersen’s clients, finding
that 95 percent of them did not switch their auditing firm until
after Andersen was
indicted for criminal misconduct regarding its Enron audit.
Findings further show that
the firms that left earlier were those more visible in the capital
markets. These results
suggest that public firms that are visible in capital markets and
are closely followed by
the press are more concerned about using a highly reputable
public accounting firm.
2.2 The Big Five accounting firms
The term Big Eight originated in the 1970s when the ranking by
size of US public
accounting firms showed that there was a significant difference
between the top eight
and the ninth largest firm. By the late 1990s, mergers had
reduced the number of such
public accounting firms to five and had increased the difference
between the top five and
the firm that ranked sixth. By 2000 the Big Five firms
(Andersen, Deloitte & Touche,
Ernst & Young, KPMG Peat Marwick, and
PricewaterhouseCoopers) had cornered the
market on audits for most major publicly traded firms. In 2001
the Big Five audited
almost 90 percent of the Fortune 500 firms and maintained 523
global offices which
generated $63 billion of global revenues with $26 billion
generated within the USA. In
2001 Andersen operated 81 offices which generated over $9
billion of global revenue, of
which over $4 billion was generated within the USA. At that
time, Andersen audited 91
11. of the Fortune 500 firms. Upon the collapse of Andersen, the
majority of their clients
were absorbed by other public accounting firms. Table I reports
each Big Five’s market
shares of the Fortune 500 firms along with revenues and offices.
2.3 Event date
The first major Wall Street Journal announcement regarding the
Andersen/Enron audit
scandal appeared on November 5, 2001: “Enron transaction
raises new questions.”
Revenues ($
billions)
a
Big Five accounting firms Fortune 500 audits US Global
Globala offices
1. PricewaterhouseCoopers 120 (24%) 8.058 19.831 151
2. Deloitte & Touche 83 (17%) 6.130 12.400 97
3. KPMG 52 (10%) 3.171 11.700 111
4. Ernst & Young 101 (20%) 4.485 9.900 83
5. Andersen 91 (18%) 4.300 9.300 81
Other public accounting firms 53 (11%)
Source:
aPublic Accounting Report (2001) (data for fiscal years ending
in 2001)
Table I.
Big Five accounting
firms, Fortune 500 audits,
revenues, and
12. offices in 2001
Andersen
implosion
over Enron
681
This announcement reported inconsistencies in the financial
reports of Enron and
explained how, in order to minimize reported debt, Enron
created companies which
would bring in equity and allow borrowing to occur without the
debt being reflected on
Enron’s balance sheet. It was at this time that it became clear
that Andersen might face
scrutiny regarding Enron’s financial reports. Later in
November, Enron released its
restated financial results, lowering reported earnings for the
prior four years by
$586 million. Over the following months it became clear that
Andersen auditors had
failed to fulfill their responsibilities in their oversight of Enron.
Figure 1 reports the calendar dates of the seven-day event
window from November
2-12, 2001. The announcement date of November 5 is labeled
(event day 0), the first
trading day prior to the announcement is labeled (event day 21),
the first trading day
following the announcement is labeled (event day þ1), and so
forth with the fifth
13. trading day following the announcement labeled (event day þ5).
3. Data
To be included in the study, a firm must:
. have been ranked as a Fortune 500 firm at least once from
1997 through 2000;
. have been publicly traded with daily stock returns and a beta
reported for the
event window on Compustat (North America) data definition;
and
. have not had a major news announcement in the Wall Street
Journal within a ten
day window from 25 to þ5 to avoid contaminating the daily
returns in the
seven-day event window.
Three samples of firms were created and are shown in Figure 2
with the firms
identified in the Appendix. The first sample includes
energy/utility firms that were
audited by a non-Andersen Big Five firm from 1997 to 2000.
The second sample
includes non-energy/non-utility firms that were audited by
Andersen from 1997 to
2000. The third sample includes energy/utility firms that were
audited by Andersen
from 1997 to 2000. The energy/utility industry included primary
SIC codes of 1311,
1389, 2911, 4911, 4922, 4923, 4931, 4932, and 5172.
4. Methodology
An event study methodology is utilized to examine the
contagion effect of the Andersen
14. and Enron audit scandal on other Fortune 500 companies
(Brown and Warner, 1985;
Figure 2.
Sample classification
Exhibit 2. Sample Classification
Andersen Audited Other Big Five Audited
Energy/utility Industry 14 21
Non-energy/non-utility Industry 44
Figure 1.
Announcement and
event window
Exhibit 1. Announcement and Event Window
Event Day –1 0 +1 +2 +3 +4 +5
|------------|--------|--------|----------|----------|---------|
Calendar Date (2001) 11/2 11/5 11/6 11/7 11/8 11/9 11/12
MF
38,7
682
Peterson, 1989; Wells, 2004). The three contagion effects
examined as described in
Table II.
15. An event study is used to measure abnormal returns in the stock
prices of publicly
traded firms as a reaction to an announcement of an event. The
fluctuation of stock
prices caused by an event can be isolated because of two unique
characteristics of stock
prices. One, a firm’s stock price is a function of the firm’s
expected future earnings.
Two, a firm’s stock price reacts to an event announcement
quickly and effectively
under the efficient markets hypothesis. Therefore, any
announcement of an event that
has an impact on future earnings of a firm should be reflected
rapidly in the stock price.
The changes in stock return can be attributed to two
components: the normal return
(the change in a stock return that results from overall stock
market movement) and the
abnormal return (the change in a stock return that results from a
specific event).
To calculate the normal return, we employ a modified market
model where the
normal return is equal to market return multiplied by the
average beta of the firms in
the sample. Thus, when the systematic risk of the sample is low
as with energy and
utility firms, then there will be smaller adjustment to the daily
return. The abnormal
return is then calculated by subtracting the normal return from
each firm’s daily
return. Thus, the daily abnormal return, ARit, for each firm i on
day t is defined as:
ARit ¼ Rit 2 BsampleRmt ð1Þ
16. where Rit is the stock return of firm i on day t, Bsample is the
average beta of the sample,
and Rmt is the stock market return of the S&P 500 Index on day
t.
The CAR for each firm is calculated for a seven-day window.
Since information about
an event may leak prior to the public announcement, a one-day
return prior to the public
announcement is included in the CAR. For example, when the
Wall Street Journal learned
of the inconsistencies in Enron’s financial statements, the Wall
Street Journal would have
published the news as soon as possible. This means the Wall
Street Journal had to learn of
the inconsistencies prior to November 5 which may have been
on Friday. Likewise, there is
a reasonable chance that investors learned of the inconsistencies
on Friday as well and
then traded on that information. Similarly, the impact of an
event on a firm could linger
over several days as the market evaluates the potential influence
of the event on the firm’s
future earnings. Thus, the five-day return after the public
announcement is included in the
CAR. The cumulative abnormal return, CARi, for each firm i
for the seven-day window,
day 21 through day þ5, is defined as:
CARi ¼
X5
t¼21
ARit ð2Þ
17. where ARit is the abnormal return for firm i on day t.
The average CAR summarizes the CARs of all the firms in the
sample. The average
CAR is used to eliminate unique individual stock returns that
may not be a result of the
Industry effect Did the scandal impact other energy/utility
firms?
Auditor effect Did the scandal impact other Andersen audited
firms?
Industry/auditor Did the scandal impact other Andersen audited
energy/utility firms
Table II.
Contagion effects
Andersen
implosion
over Enron
683
event studied. While some stocks will have random positive
returns, other stocks will
have random negative returns so summing the returns will offset
these random
positive and negative returns. The average cumulative abnormal
return (ACAR), for
the sample is defined as:
ACAR ¼
18. PN
i¼1CARi
h i
N
ð3Þ
where CARi is the CAR for firm i over the seven-day window,
and N is the number of
firms in the sample. If the public announcement of the
Andersen/Enron audit scandal
had a contagion effect on the sample of firms, then the event
should result in an ACAR
that is significantly different than zero.
5. Results
The first set of results will evaluate the industry contagion
effect. The second set of
results will evaluate the auditor contagion effect and the third
set of results will
evaluate the combined industry/auditor contagion effect.
5.1 Industry contagion effect
We examined the energy/utility firms that were not Andersen
audited and find an
ACAR of 2.51 percent which is significant at the 1 percent
level. We also find that
90 percent of the firms in the sample experience a positive
return over the seven-day
event window which is also significant at the 1 percent level.
Table III reports both
results along with the sample beta. It is clear that the market did
not perceive the
announcement as negative news and was not concerned with
19. other energy/utility
companies undertaking operations similar to Enron. On the
contrary, the market
perceived the announcement as positive news where there was a
competitor effect. It is
likely the market perceived Enron as moving toward bankruptcy
and surviving firms
in the industry would benefit with the elimination of Enron, a
large competitor[1].
5.2 Auditor contagion effect
We examine the non-energy/non-utility firms that were audited
by Andersen and find
an ACAR of 1.14 percent while the percent of positive CARs
was 41 percent. Neither
figure is significant at even the 10 percent level. Thus, we
conclude there is no auditor
contagion effect on other non-energy firms audited by
Andersen. Table III reports the
ACAR and percent of CARs that are positive.
ACAR (%) Positive CAR (%) Firms b
Industry contagion effect
Energy/utility firms with non-Andersen audit 2.513 * * * 90 * *
* 21 0.16
Auditor contagion effect
Non-energy/non-utility firms with Andersen audit 1.141 41 44
0.96
Combined auditor/industry contagion effect
Energy/utility firms with Andersen audit 0.064 50 14 0.24
Notes: Significant at: *10, * *5 and * * *1 percent levels; all
significance levels are for one-tailed tests
Table III.
20. Average CARs, percent
positive CARs, number of
firms in the sample, and
betas of the sample
MF
38,7
684
Given the independent structure of audit firm offices and the
tendency within public
accounting firms for offices of a firm to specialize in a
particular industry, there
appears to be no market perception that the failure of one office
contaminates the
results of other offices. Thus, from an auditing perspective, it
appears that the market
is unaware of the similarity in the manner of conducting an
audit among auditing
firms. Alternately, it is possible that the market is already so
cynical about the ability
of the audit to detect irregularities that a scandal of the
Andersen magnitude has no
impact upon their awareness. Certainly, the passage of the
Sarbanes-Oxley Act which
tightened regulation of all auditors of publicly traded firms
gives credence to this
explanation.
5.3 Combined auditor/industry contagion effect
We examine the firms that were both:
(1) audited by Andersen; and
21. (2) classified as energy/utility firms and find an ACAR of 0.06
percent while the
percent of positive CARs was 50 percent.
Neither figure is significant at even the 10 percent level. Thus,
we find no
auditor/industry contagion effect. However, unlike our first
sample of competitors, this
sample of competitors did not experience a positive impact on
their stock price.
It appears the good news of Enron’s likely bankruptcy was
offset by the increased
likelihood that these firms audited by Andersen may have
similar problems with their
audits.
5.4 Dollar impact of the industry contagion effect
To determine the financial impact in dollars of the industry
contagion effect, we
calculate the market capitalization gain for the sample of energy
and utility firms that
were not audited by Andersen. When each firm’s market
capitalization is multiplied by
its CAR, we find the average dollar gain is an astounding $226
million and the median
gain is $101 million. The aggregate gain of the 20 firms in the
sample is $4.76 billion.
These results support there is a strong positive competitor effect
where these firms’
audits likely represent the firms’ actual financial pictures and
that Enron’s bankruptcy
will likely lead to greater market share in their industry. Only
Andersen was viewed as
exhibiting an inability to appropriately monitor the complex
22. transactions and opaque
reporting practices of Enron.
6. Conclusions
When a firm-specific event is publicly announced such as the
Enron scandal, other firms
may suffer or even benefit from being in the same industry. If
an industry contagion
effect is present, then those other firms in the industry may
suffer adversely from a
negative news announcement regarding an isolated firm such as
Enron, even though
there was no negative news about them. There is also the
possibility that firms in the
industry may benefit from the failure of a competitor. Likewise,
when a firm-specific
event is publicly announced such as about Andersen’s
connection with Enron, other
Andersen audited firms may suffer. If an auditor contagion
effect is present, then those
firms will suffer adversely from a negative news announcement,
even though there was
no negative news about them specifically. Furthermore, a
combined industry/auditor
Andersen
implosion
over Enron
685
contagion effect may result from the news announcement that
Andersen may have
23. enabled Enron to issue improperly presented financial
statements. In this case,
Andersen audited firms in the energy/utility industry would be
doubly affected
negatively.
The results of this study reveal a strong industry-only contagion
effect. However,
the impact is a positive one where the failure of a large
competitor will increase market
share for the remaining firms in the industry. Our study
evaluates 21 energy and utility
firms that were not audited by Andersen and we find these
firms, over average,
experienced an astounding 2.5 percent increase market
capitalization over a seven-day
window surrounding the announcement of the Andersen/Enron
audit scandal. In dollar
terms, the mean increase in market capitalization was $226
million while the median
increase in market capitalization was $101 million dollars. In
the aggregate, the 21 firms
gained $4.76 billion in market capitalization.
We examine a sample of non-energy/utility firms that were
audited by Andersen
and find no financial impact on these firms when the Enron-
Andersen scandal was
announced. Likewise, we also examine a sample of energy and
utility firms that were
audited by Andersen and again, there is no financial impact on
these firms when the
Enron-Andersen scandal was announce. However, while these
firms did not suffer
when the scandal was announced, nor did they benefit like the
other sample of energy
24. and utility firms without Andersen audits. It appears the
positive news of a strong
competitor going bankrupt was offset by the concerns that the
financial statements of
these energy/utility firms that were audited by Andersen might
also be inaccurate.
Note
1. The authors also employed a market-adjusted model to
evaluate cumulative abnormal
returns. The results for the sample of non-energy and non-utility
firms are similar to those in
Table III because the market-adjusted model assumes each firm
has a beta of 1.00 and our
modified market model used an industry beta of 0.96 for each
firm. However, the results for
the two samples of energy and utility firms are much different
than the results in Table III
because the industry betas are 0.16 for the non-Andersen
audited sample and 0.24 for the
Andersen audited sample versus a beta of 1.00 in the market-
adjusted model. Results are
available from the authors. We thank an anonymous referee for
suggesting an industry beta
be used in a modified market model.
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(The Appendix follows overleaf.)
Andersen
implosion
over Enron
27. 687
Appendix
Corresponding author
Robert A. Kunkel can be contacted at: [email protected]
Energy/utility firms, non-Andersen audited (beta) Andersen
audited, non-energy/utility firms (beta)
1. Allegheny Energy, Inc. (0.322) 1. ADC Telecommunications,
Inc. (1.851)
2. Ameren Corp. (0.022) 2. AGCO Corp. (0.689)
3. American Electric Power (20.111) 3. Air Products &
Chemicals, Inc. (0.876)
4. ConocoPhillips (0.609) 4. Allied Waste Industries, Inc.
(0.941)
5. Consolidated Edison, Inc. (20.038) 5. Ames Dept Stores, Inc.
(3.767)
6. Dominion Resources, Inc. (0.097) 6. AutoNation, Inc. (0.729)
7. DTE Energy Co. (20.157) 7. Avnet, Inc. (1.182)
8. Duke Energy Corp. (20.056) 8. Budget Group, Inc. (0.510)
9. FPL Group, Inc. (20.008) 9. Costco Wholesale Corp. (1.097)
10. Hess Corp. (0.481) 10. Cummins, Inc. (1.153)
11. Murphy Oil Corp. (0.478) 11. Danaher Corp. (1.104)
12. ONEOK, Inc. (0.465) 12. Dole Food Co. Inc. (0.412)
13. Pinnacle West Capital Corp. (20.076) 13. Donnelley (RR) &
Sons Co. (0.617)
14. PPL Corp. (0.344) 14. EMCOR Group, Inc. (0.999)
15. Progress Energy, Inc. (20.032) 15. Fed Home Loan Mort
Corp. (0.519)
16. Public Service Enterprise Group Inc. (0.001) 16. Fleetwood
Enterprises (1.273)
17. SCANA Corp. (20.011) 17. Group 1 Automotive, Inc.
28. (1.137)
18. Sempra Energy (20.092) 18. Halliburton Co. (1.204)
19. Tesoro Corp. (0.752) 19. Hershey Co. (20.353)
20. Western Gas Resources, Inc. (0.320) 20. Hilton Hotels Corp.
(0.906)
21. Wisconsin Energy Corp. (20.015) 21. HSBC Finance Corp.
(0.342)
Energy/utility firms, Andersen audited (beta) 22. Illinois Tool
Works (0.882)
1. Adams Resources & Energy, Inc. (0.629) 23. International
Paper Co. (1.026)
2. Aquila Resource & Energy, Inc. (0.195) 24. Lauder (Estee)
Cos. Inc. (0.895)
3. Cinergy Corp. (20.186) 25. Lear Corp. (1.256)
4. CMS Energy Corp. (0.413) 26. Lennox International, Inc.
(20.005)
5. Edison International (20.163) 27. Manpower, Inc. (0.858)
6. FirstEnergy Corp. (20.052) 28. Marriott International, Inc.
(0.770)
7. Kerr-McGee Corp. (0.848) 29. MAXXAM, Inc. (0.468)
8. NiSource, Inc. (0.108) 30. MCI, Inc. (1.458)
9. Northeast Utilities (0.428) 31. Merck & Co. (0.484)
10. Northwestern Corp. (20.098) 32. OfficeMax, Inc. (1.050)
11. Occidental Petroleum Corp. (0.608) 33. Omnicom Group
(1.092)
12. OGE Energy Corp. (20.001) 34. Owens Corning (0.975)
13. Southern Co. (20.354) 35. Sanmina 2 SCI Corp. (2.582)
14. Valero Energy Corp. (0.990) 36. ServiceMaster Co. (0.236)
37. SLM Corp. (0.607)
38. Tenneco, Inc. (0.984)
39. Thermo Electron Corp. (1.020)
40. UnitedHealth Group, Inc. (0.975)
41. USG Corp. (1.313)
42. Weyerhaeuser Co. (1.120)
43. Wyeth (0.493)
29. 44. YRC Worldwide, Inc. (0.847)
Table AI.
Firm classification for
the three samples and
firm betas
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