PCAOB Sanction and Client Stock Market Reactions: Evidence from the Case of Ernst and Young Indonesia

Read the full paper from one of our faculty members, Gatot Soepriyanto, on PCAOB Sanction and Client Stock Market Reactions: Evidence from the Case of Ernst and Young Indonesia. The objective of this study was to examine the client share prices to news of the Public Company Accounting Oversight Board (PCAOB) censure on Ernst & Young Indonesia (EY-Indonesia)–the first against a Big Four auditor in Indonesia. Using an event study analysis, the researchers found some evidence that EY-Indonesia clients had a significantly positive market reaction compared to the none EY-Indonesia clients in regard to the news of the PCAOB sanction. The results indicate that the remedial effects of EY’s actions taken after the sanction outweigh the negative effects. The results of this study are robust if compared to the abnormal returns for EY-Indonesia clients versus other Big 4 clients. This study is important to highlight the positive effects of the PCAOB sanction and monitoring to improve the audit quality in a developing market.

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