Market Reactions to Disclosure of Reportable Events

Posted: 14 Dec 2001

See all articles by Scott Whisenant

Scott Whisenant

University of Kansas

Srinivasan Sankaraguruswamy

National University of Singapore (NUS) - Department of Accounting

Kannan Raghunandan

Florida International University (FIU) - School of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: July 2002

Abstract

This study investigates the information content of FRR No. 31 reportable events (SEC 1988) that describe weaknesses in internal control and problems related to the reliability of management representations and/or financial statement reliability that were previously communicated to clients by their predecessor auditors. Our findings suggest that reportable events, disclosed in Form 8-K filings of auditor changes, convey negative information to investors. We find a -2.75% (-5.53%) cumulative abnormal return over a three-day (seven-day) announcement period surrounding the disclosure of reportable events in Form 8-K filings. The conclusion that reportable events offer information to investors is robust to alternative specifications of expected returns and to controls for other disclosures (resignations and disagreements) made when auditor changes occur. Further tests also highlight differential information content among the types of reportable events. Stock prices act as if investors find reportable events about reliability issues more informative than reportable events about internal control weaknesses.

Previous titles: "The Consequences and Information Content of the Types of FRR No. 31 Reportable Events", "The Information Content of Internal Control Related Matters Noted During an Audit in Form 8-K Filings of Auditor Realignments" and "Relation to Auditor Resignations; Auditor Changes and Reportable Events"

Keywords: internal control, reportable events, auditor changes

JEL Classification: M41, M45, M49, G12

Suggested Citation

Whisenant, Scott and Sankaraguruswamy, Srinivasan and Raghunandan, Kannan, Market Reactions to Disclosure of Reportable Events (July 2002). Available at SSRN: https://ssrn.com/abstract=293404 or http://dx.doi.org/10.2139/ssrn.293404

Scott Whisenant

University of Kansas ( email )

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Srinivasan Sankaraguruswamy

National University of Singapore (NUS) - Department of Accounting ( email )

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Kannan Raghunandan (Contact Author)

Florida International University (FIU) - School of Accounting ( email )

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Miami, FL 33199
United States
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