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Do investors gamble with going-concern firms?

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  • Kausar, Asad
  • Kumar, Alok
  • Taffler, Richard J.

Abstract

We explain why the market underreacts to the certified extreme financial distress signal conveyed by the auditor's going-concern (GC) opinion. We conjecture that GC stocks attract retail investors with gambling proclivities. Splitting our GC sample into lottery-like and non-lottery-like firms, we find that the anomaly is concentrated in lottery-like firms, which underperform by −17 % to −32 % over the following year. A range of analyses confirm retail investors with greater propensity to gamble are more likely to trade lottery-like GC stocks. We conclude that retail investor gambling-motivated trading behavior is a key driver of the going-concern market paradox.

Suggested Citation

  • Kausar, Asad & Kumar, Alok & Taffler, Richard J., 2026. "Do investors gamble with going-concern firms?," Journal of Financial Markets, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finmar:v:77:y:2026:i:c:s1386418125000515
    DOI: 10.1016/j.finmar.2025.101011
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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