European Market Reaction to Audit Reforms
40 Pages Posted: 16 May 2015 Last revised: 14 Oct 2017
Date Written: October 1, 2017
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: Suggested Citation