The Impact of Bankruptcy Code on the Value of the Auditor's Going-Concern Opinion to Investors
51 Pages Posted: 6 Jan 2006
Date Written: July 4, 2006
This study examines the comparative information content of the going-concern opinion in very similar auditing and capital market environments but divergent legal regimes. We hypothesize that, ceteris paribus, investors in a creditor-friendly bankruptcy regime (the U.K.) react more adversely to a first-time going-concern audit opinion indicating increased risk of loss associated with bankruptcy than do investors in a debtor-friendly bankruptcy regime (the U.S.). Our empirical results are consistent with this expectation. Our findings have clear implications for standard-setters and regulators who, in pursuing international harmonization of accounting and auditing standards, need to take into account how such standards interact with local legal regimes, and consequently their informativeness to capital market participants.
Keywords: bankruptcy codes, going concern, international capital markets, international accounting standards
JEL Classification: M40, M41, G14, G15
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