Article1996

Going Concern Opinions and the Market's Reaction to Bankruptcy Filings.

189 citations0/0 files storedThe Accounting Review

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Auditing, Earnings Management, Governance Corporate Insolvency and Governance Financial Distress and Bankruptcy Prediction

Abstract

Abstract This study investigates the association between going concern opinions and the market's reaction to bankruptcy filings. The results of prior studies indicate that going concern opinions are useful in predicting bankruptcy and provide some explanatory power in predicting bankruptcy resolution. As such, going concern opinions may reduce the surprise associated with bankruptcy. Our results are consistent with this assertion. Firms receiving going concern opinions experience less negative excess returns in the period surrounding bankruptcy filings than those receiving unqualified opinions. These results hold after controlling for the probability of bankruptcy, the market's reaction to news announcements occurring prior to bankruptcy, and changes in stock price prior to the issuance of the auditor's report. Overall, our results are consistent with going concern opinions having information value.

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References

1992The Cross-Section of Expected Stock Returns 1980Financial Ratios and the Probabilistic Prediction of Bankruptcy 2007Financial statement analysis 1990Security Pricing and Deviations from the Absolute Priority Rule in Bankruptcy Proceedings 1986Abnormal stock returns associated with media disclosures of ‘subject to’ qualified audit opinions 1980An Investigation into Auditors' Continuity and Related Qualification Judgments 1992Default on Debt Obligations and the Issuance of Going-Concern Opinions.1984Qualified audit opinions and stock prices

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2008Ownership, independent directors, agency costs and financial distress: evidence from Chinese listed companies 2002Evidence on auditor risk-management strategies before and after The Private Securities Litigation Reform Act of 1995 1999The Accuracy and Incremental Information Content of Audit Reports in Predicting Bankruptcy 2011The Auditor's Going-Concern Opinion as a Communication of Risk 2013Audit opinion and earnings management: Evidence from Greece

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