Investor Reactions to PCAOB Inspection Reports

42 Pages Posted: 13 Apr 2011

See all articles by Mona Offermanns

Mona Offermanns

Maastricht University - Department of Accounting and Information Management

Erik Peek

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Erasmus Research Institute of Management (ERIM)

Date Written: April 12, 2011

Abstract

This study examines whether PCAOB inspection reports succeed in providing a meaningful signal of audit quality. We find a statistically and economically significant market response to the issuances of 224 first-round and 134 second-round inspection reports between January 2005 and March 2010, indicating that inspection reports have information content. Moreover, the observed market response is systematically associated with cross-sectional variation in report-specific determinants of inspection report informativeness, indicating that the market response can be reliably attributed to the information in the inspection report. We also find that at least part of the market response to the publication of PCAOB inspection reports can be attributed to revisions in investors’ beliefs about accounting information quality. This paper takes a first step to assess the informative value of the PCAOB inspection reports to investors, who could be regarded the ultimate consumers of the audit. It also contributes to the literature on the value of the audit by providing evidence that a commonly available signal of audit quality has an economically significant value effect.

Keywords: PCAOB inspection reports, audit quality, stock market response, precision of accounting signals

JEL Classification: M41

Suggested Citation

Offermanns, Mona and Peek, Erik, Investor Reactions to PCAOB Inspection Reports (April 12, 2011). Available at SSRN: https://ssrn.com/abstract=1807994 or http://dx.doi.org/10.2139/ssrn.1807994

Mona Offermanns (Contact Author)

Maastricht University - Department of Accounting and Information Management ( email )

Tongersestraat 53
Maastricht, 6211 LM
Netherlands

Erik Peek

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

Burg Oudlaan 50
Room T08-53
3062 PA Rotterdam, 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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