Who Cares about Auditor Reputation?*

I provide evidence on the demand for auditor reputation by examining the defections of Arthur Andersen LLP's clients following the accounting scandals and criminal conviction marring the auditor's reputation in 2002. About 95 percent of clients in my sample did not switch auditors until after Andersen was indicted for criminal misconduct regarding its failed audit of Enron Corp. I test whether the timing of client defections and the choice of a new auditor are consistent with managers' incentives to mitigate potentially costly information and agency problems. I find that clients defected sooner, mostly to another Big 5 auditor, if they were more visible in the capital markets; such clients attracted more analysts and press coverage, had larger institutional ownership and share turnover, and raised more cash in recent security issues. However, my proxies for agency conflicts — managerial ownership and financial leverage — are not associated with the timing of defections or the choice of new auditor. Overall, my study suggests that firms more visible in the capital markets tend to be more concerned about engaging highly reputable auditors, consistent with such firms trying to build and preserve their own reputations for credible financial reporting.     

The Effects of a Booming Export Industry on the Rest of the Economy*

It is argued that the roles of relative factor intensity and of the degree of factor mobility have been neglected in models of booming export industries. This paper shows that, contrary to popular beliefs. the mineral export boom may result in (a) an expansion of all industries, (b) an increase in the profitability of the traditional tradeables sector, and(c) a fall in the relative price of non-tradeables .     

SOME THOUGHTS ON INDIRECT TAX EFFECTS IN SOUTH AFRICA*

Whereas income tax is the product of 19th Century thought on State revenue, indirect taxes and property taxes go back to ancient times. This is not surprising, for in underdeveloped countries consumption and property are more readily ascertained than income, which is wholly or partly received in the form of subsistence income or payment in kind.