European Market Reaction to Audit Reforms

40 Pages Posted: 16 May 2015 Last revised: 14 Oct 2017

See all articles by Joanne Horton

Joanne Horton

University of Warwick - Warwick Business School

Maria Tsipouridou

Aristotle University of Thessaloniki

Anthony Wood

University of Exeter Business School

Date Written: October 1, 2017

Abstract

This paper investigates European stock market reaction to events associated with the proposed EU audit reforms that were ultimately implemented in 2016. These include, inter alia, mandatory audit firm rotation, prohibition of non-audit services and fee caps. We find that investors reacted positively to the proposals, lifting aggregate market value by approximately €108,630 million. In cross-sectional analysis at both country and firm level, we find that these net benefits arise from the prohibition of non-audit services and the placing of a cap on total fees charged by the auditor. Furthermore, we find investors in firms with low earnings quality appeared to perceive the greatest benefits from the proposed reforms.

Keywords: audit reform, Europe, Green Paper, event study

JEL Classification: M41, M42, G38

Suggested Citation

Horton, Joanne and Tsipouridou, Maria and Wood, Anthony, European Market Reaction to Audit Reforms (October 1, 2017). European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2604035 or http://dx.doi.org/10.2139/ssrn.2604035

Joanne Horton

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Maria Tsipouridou (Contact Author)

Aristotle University of Thessaloniki ( email )

Department of Economics
Thessaloniki, 54124
Greece
00306948334043 (Phone)

Anthony Wood

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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