Auditor Reputation and Capital Market Reaction: New Evidence from Emerging Market

Abstract

This paper attempts to investigate whether the news covering the role of Deloitte in the case of Mohammad Al-Mojil Group (MMG) fraud affecting the abnormal returns of the public companies listed in Saudi stock. Using event study methodology, the present study finds that negative but not Significant mean abnormal returns for Deloitte’s clients and Big 4 clients during 2012 and 2014. The interesting results of the current study are there is a significant negative abnormal return for Deloitte's clients in the long event window (-1, +2) at the 2014 period. This means that the effect of the announcement is reflected in the stock price on the first day of the event and its effect extended to the second day. Such results support the hypotheses H1 that Deloitte's clients, other than MMG, experienced a significant negative market reaction to the news that reflects negatively on the quality of Deloitte's MMG audit.