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Does Auditor Reputation Matter to Nonprofit Contributors?
Erica Harris, Temple University
Jagan Krishnan, Temple University
ABSTRACT: This study investigates whether donations and other contributions to nonprofit entities are affected by the reputation of their auditors. First, we examine the impact the Big 5 (now Big 4) audit firms have on donor contributions and on other revenue sources. Second, we focus specifically on nonprofit clients of Arthur Andersen prior to its demise, and investigate the impact of its loss of reputation on donations and revenues. We find that, for the period 1999-2004 clients of Big 5 auditors received higher contributions from all sources of funding, except individual donations, suggesting contributors other than individual donors are sensitive to auditor reputation. Further, we find that Arthur Andersen’s loss of reputation does not seem to impact donations and other contributions. This is in contrast to the findings reported in for-profit studies that document loss of market value suffered by shareholders of Andersen’s clients.
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