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The horse has bolted: revisiting the market reaction to going concern modifications of audit reports

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  • Kathleen Herbohn
  • Vanitha Ragunathan
  • Robert Garsden

Abstract

This paper examines what value is added by an audit report through an investigation of the information content for first-time going concern modifications (GCMs). Consistent with prior research, we find no evidence of a short-term market reaction to the public announcement of a first-time GCM. We document a significant adverse medium-term market reaction in the 12 months prior to a first-time GCM announcement, but find no evidence of a persistent market underreaction in the 12 months following the announcement. These results are consistent with an audit opinion fulfilling an attestation function and confirming the deteriorating financial condition of a firm. Copyright (c) The Authors Journal compilation (c) 2007 AFAANZ.

Suggested Citation

  • Kathleen Herbohn & Vanitha Ragunathan & Robert Garsden, 2007. "The horse has bolted: revisiting the market reaction to going concern modifications of audit reports," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 47(3), pages 473-493.
  • Handle: RePEc:bla:acctfi:v:47:y:2007:i:3:p:473-493
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-629X.2007.00216.x
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    Cited by:

    1. Marilena Mironiuc & Ioan-Bogdan Robu & Mihaela-Alina Robu, 2011. """Going Concern"" And The Effects Of The Operational Cycle Management. An Empirical Study Concerning The Usage Of Financial Analysis For Obtaining Preliminary Proofs In The Task Of," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 2011, pages 41-53, july.
    2. Elizabeth Carson & Neil Fargher & Yuyu Zhang, 2016. "Trends in Auditor Reporting in Australia: A Synthesis and Opportunities for Research," Australian Accounting Review, CPA Australia, vol. 26(3), pages 226-242, September.
    3. Ruben M.T. Peixinho & Richard J. Taffler, 2011. "Are analysts misleading investors? The case of goingconcern opinions," CEFAGE-UE Working Papers 2011_22, University of Evora, CEFAGE-UE (Portugal).
    4. repec:eee:spacre:v:19:y:2016:i:1:p:89-101 is not listed on IDEAS

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