The Impact of Tarnished Auditor Reputation on Nonprofit Income

Abstract

This study focuses on nonprofit clients of Arthur Andersen and investigates the impact of Andersen's loss of reputation on five charity income sources. We find that Arthur Andersen's loss of reputation does not impact nonprofit income. Our results are robust to alternative definitions of nonprofit income including multiple donation and revenue types, as well as organizational characteristics such as year, size, state, industry, organizational age, replacement auditor, and reliance on revenue source. These findings are in contrast to the results reported in for‐profit studies that document the loss of market value suffered by shareholders of Andersen's clients. We believe this contribution has interesting implications for both nonprofit organizations and nonprofit researchers who aim to explore the effect accounting firm reputation plays in the nonprofit sector.

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