Authors: Ping Lin; Sanjian Bill Zhang; Gaiyan Zhang
Addresses: College of Business Administration, California State University, Long Beach, 1250 Bellflower Boulevard, Long Beach, CA 90840, USA ' College of Business Administration, California State University, Long Beach, 1250 Bellflower Boulevard, Long Beach, CA 90840, USA ' College of Business Administration, University of Missouri-St. Louis, 1 University Blvd. St. Louis, MO 63121-4400, USA
Abstract: We define risk containment in this study as the practice of retaining or attracting low business risk clients and dropping high business risk clients for revenue growth and litigation minimisation. We conduct a comprehensive study of the risk containment by the Big-4 accounting firms based on two market measures: (a) credit default swap (CDS) spread and (b) delisting ratios of their clients. We predict that the average risk of one Big-4 accounting firm's client portfolio is lower than that of the other three Big-4 firms. Results from a sample in 2002-2007 lend support to our prediction and are consistent with the notion that one Big-4 firm has better risk management practices than others. Further robustness tests still generate similar results. We further test our hypothesis with the delisting percentage of the Big-4 clients. The diverging trend after 2006 is consistent with our prediction too.
Keywords: Big 4 accounting firms; business risk; client portfolio; risk management; risk containment; credit derivatives; credit default swaps; CDS spread; delisting ratios.
International Journal of Services and Standards, 2014 Vol.9 No.2/3/4, pp.146 - 174
Received: 09 Dec 2014
Accepted: 13 Dec 2014
Published online: 05 Feb 2015 *