Criticisms of Auditors and the Association Between Earnings and Returns of Client Firms.

Key Points

• To examine the effects of SEC sanctions on auditors and their relationship with client firms' earnings response coefficients and stock returns.
• Analyzed stock returns of client firms before and after SEC sanctions on auditors.
• Compared earnings response coefficients to assess impact on security prices.
• SEC sanctions led to a significant change in earnings response coefficients of client firms.
• Client firm stock returns decreased after sanctions were imposed on their auditors.