IMPAIRED AUDITOR’S CREDIBILITY AND ITS EFFECT ON THE STOCK MARKET:

This study examines whether impairment of auditor’s reputation negatively affects stock returns of the publicly listed auditor’s clients. By conducting an event study, the impact of six enforcement initiatives imposed by Dutch authorities are analyzed using the market model on companies listed on the Dutch Euronext Amsterdam. Moreover, the differences in stock returns of the auditor’s clients and the non-clients are tested using both parametric and nonparametric tests. Although the results are mixed, the outcomes hint that the auditor’s clients perform worse than the non-clients during the days following the event. In case any market reaction is detected, it is observed on the event date directly.