External audits and the impact of loss of reputation on agency costs: an empirical investigation

Refers to previous research on the effects of poor external audits on agency costs to shareholders and takes the 1991 disciplinary action by the US Securities and Exchange Commission against Ernst and Young (re the Republic Bank) as an example to examine the effect on its other audit clients and on financial institutions. Uses event study methods to show that there were no statistically abnormal returns for financial institutions or for Ernst and Young’s audit clients; but significant negative returns for firms audited by non‐big six auditors.